Is The American Dream of Homeownership Dying?

Why buying a home feels unrealistic for so many people today

Have you ever gotten jealous of your parents or grandparents for how simple and cheap buying a home seemed for them? Or maybe you endlessly scroll Zillow just to daydream about one day being able to afford anything nice in your area.

Truth is, buying a home now feels like an unrealistic goal that’s impossible for so many.

Let me explain why this is and how it will affect you:

Wages Aren’t Keeping Up

The first (and most important) part of this growing problem is simple. Average wages aren’t keeping up with housing price increases. And its not even close…

For decades now the increase in median home prices has vastly outpaced the increase in median household income. Look at this chart comparing the two since 1965:

After accounting for inflation, home prices have jumped 118% since 1965, while income has only increased by 15%.

Experts and lenders have always recommended purchasing a home that doesn’t exceed 2.5x your annual salary. But in today’s real estate market, the average home now cost 5.4x more than the average buyer’s salary.

Covid Made Things Worse

The low interest rate environment throughout the Covid pandemic only made this problem worse. Buyers flooded the market driving home prices higher even faster than before.

The median existing home price in February of 2023 was $379,000 (up 14.3% from 2022).

Inflation Gone Crazy In Housing

Inflation makes everything more expensive over time, but home price hikes have taken the lead by far.

Home prices have increased a whopping 1608% since 1970 while inflation is only at 644%.

Here’s another chart breaking down this same drastic difference:

Considering that most salary increases are based on the rate of inflation in our economy, it’s no wonder so many people see buying a home today as impossible for themselves.

In just 2020-2021 alone, home price increases exceeded overall inflation by 168%.

At these rates, the ‘American Dream’ of home ownership is seeming less attainable not by the decade, but by the year.

Steady Rate Hikes Aren’t Helping

Now with The Fed drastically hiking interest rates to fight inflation, it’s becoming even more expensive to buy because you’re paying significantly more interest on your mortgage.

All this is happening while average home prices are staying about the same and not coming down. With a large majority of homeowners locked into a mortgage under 5%, not as many people want to give up their lower interest rate mortgage to take on a higher one moving elsewhere.

This has caused supply in the housing market to stay relatively low which doesn’t help in driving down housing costs.

Looking Ahead

All of these statistics create a very challenging environment for those looking to purchase a home, especially first-time homebuyers. Though it’s not impossible!

There’s still opportunities out there for those who stay searching for them and prepared to take action. Every real estate market is different across the country, so you’ve got to do the research on your local area to know how to best prepare.

Conclusion: Something Needs To Change

Even though many real estate markets still offer affordability for their local population, I can’t help but wonder how long that will last.

The current difference between home price vs wage increases is very drastic and seems unsustainable.

Only time will tell how this plays out, but it’s a major problem worth monitoring in my opinion. Stay informed with this ongoing situation by subscribing below if you haven’t already!

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