Distortion of History: Housing Affordability Is Not Worst Ever

Historical Perspective of Housing Affordability

What if… we took the median income of everyone in the US.

And we took the average priced home in the US and calculated what the mortgage payment on that average priced home would be… using the then current mortgage interest rate. We’d pretend we were doing a 20% down payment, 30-year fixed rate loan.

And what if we asked:

What percent of the median income would the payment on the average home be?

This would be the chart above.

The prevailing 30-year mortgage interest rate with a 20% down payment is shown in the lighter blue line with the numbers on the right axis.

The percent that the payment takes up on the median income is the darker blue line and the left axis.

10 Years of History

Over the last 10 years—what is not blocked out in the image above—you can see that we were seeing about 20% of the median income for a housing payment for an average priced home.

As interest rates jumped in the last couple years, we’ve seen that skyrocket to 38.2% a few months ago and it has come back a little to 33.4% in the most recent month.

Is it worse than it was 10 years ago? Absolutely.

But 10 years ago until about 2 years above were EXCEPTIONAL times with really low mortgage interest rates. That was not normal.

20 Years of History

In fact, let’s go back another 10 years (20 total from today). Here’s that image.

Back in 2006, we were very close to the same percent of median income for the average home as we are today (33.8% versus 33.4%).

People, in general, have short memories… they remember what they could have had 5 years ago, but forget that the situation we’re in right now isn’t that unusual.

And, maybe… just maybe… it is better than it has been historically…

30 Years of History