More Americans are finding it harder to afford a home. In fact, a closely followed housing affordability index is now back to where it was in 2008. Not exactly a prime time for buying homes. Most Americans are too broke to afford a home. Which is somewhat contrary to the narrative that is pumped out via pro housing propaganda. Buying a home is always a good deal! Real estate never falls! Only fools rent! So goes the story about buying real estate. Yet given current prices, many families find the dream of owning a home more of a far flung aspiration than a reasonable financial reality. We can see this trend unfolding with the vast number of new renter households over the last decade. Younger Americans are saddled with mountains of student debt and many are making lower wages. Taking on a large mortgage simply isn’t appealing or feasible when an albatross of debt is already being carried.
Housing affordability index screaming red. Home prices are getting out of sync with wages and economic growth. In order to purchase a home today many people need to take on a massive mortgage. Wages are simply not keeping up and people are using debt to maintain the pretense of middle class living. Take a look at the housing affordability index:
What has caused the big change recently is the jump in mortgage rates. Of course this is being driven by shock in the bond markets. But it should tell you something that even with 4 percent interest rates, that the market was expecting low interest rates to stick around. Even a slight move from the 3 percent range to the 4 percent range has caused affordability to drop significantly.
The number of young adults living at home is at a generational high:
This of course is largely due to the affordability issues being seen in the housing market. I hesitate to call the housing market a full on market because there has been so much manipulation that has gone on. This is why there are major distortions playing out. With prices rising, you would expect home ownership to be the driving force here. It isn’t. It is lack of supply of affordable housing and investors buying up single family homes to convert into rentals.
That previous chart shows you where things may be heading. Young Americans are largely too broke to buy homes. They certainly are too broke to buy large amounts of cookie cutter McMansions that are built for families of five or six when new families are much smaller. Things have dramatically changed for society and this is driving how we live.
What are the implications of this new housing trend where many are too poor to buy? Well the American Dream is certainly coming into question. Is the dream worth going into massive debt and trying to keep up with payments merely to say you own a home? Many people are living in metro areas near work instead of suburbs. There is an interesting phenomenon where some suburbs have turned into bad neighborhoods because people would rather live near work.
Ultimately the housing market has been co-opted as a token for the big casino games in Wall Street. Housing used to be a boring segment of the economy like a utility. That is until large banks decided to turn it into the Wild West and the rest is history. Good luck trying to afford a home in this market.
Peter is a Real Estate Broker at Professional Brokers Group (License No. 023000), covering the greater Short Sale area of Colorado.
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Peter Janisch specializes in short sales in Short Sale Realtor. I am your Short Sale Realtor Short Sale Specialist Realtor and Short Sale Realtor loan modification and distressed property expert. This article and content is for general informational purposes and may not be accurate. This should not be taken as legal advice, technical or tax advice under any circumstance. Seek legal advise and representation in all legal matters.