Looks Like The American Dream Is Dying

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Key Takeaways:

• While the pace of growth might be slowing, housing affordability isn’t getting much better. 
• In fact, it might be getting worse, pricing even more would-be homebuyers out of the market. 
• If you’re of modest means and just starting to save to buy a house, it could take you a long time to get there. 

Don’t confuse talk of a cooldown in the housing market with more affordability. 

While the pace of the ongoing increase in prices might have slowed in June, we’re still setting records. 

Source: National Association of Realtors

Yes, the annual increase in the median sale price of a home slowed to a still paltry 13.4% last month. But we managed to set another record with the median hitting $416,000 in June. 

This, combined with high interest rates and relatively low and/or stagnant income for large swaths of the population, indicates things might actually get worse – from an affordability standpoint – before they get better. 

Consider data from a report S&P Global Ratings just put out:

That graph shows how many years it took in the past, takes right now, and will take in the future to save a 10% or 20% down payment to buy a home. 

While things were much worse around the housing crash of 2008, they’re pretty bad right now. Plus, in 2008, we didn’t have the luxury of as many social media-induced dopamine rushes to make us feel better.

• By Q4/2022, a first-time homebuyer earning the median income will need 11.3 and 22.6 years, respectively, to save 10% and 20% down payments for a home. 

But Why!? 

The report blames a confluence of factors, including: 

• Shrinking housing supply
• Projections of increased unemployment
• Increased likelihood of a recession (To that end, we learned this morning that the nation’s GDP shrank for the second straight quarter, indicating we’re well on our way, if not technically in a recession).
• Declining savings rates 
• Housing prices increasing faster compared to incomes

Beyond The Down Payment

As if saving for a down payment wasn’t daunting enough, middle-income earners were already priced out of the market in Q1 of this year. By Q4/2025, S&P Global projects that 60% – yes, sixty percent – of households will not be able to afford to pay the mortgage on a typical home. 

Renting Is No Relief 

In the old days (not all that long ago), you heard people saying we’re renting as we save to buy a home. However, with record rent prices, this core element of the American dream might be dying – or dead on arrival – as well. 

If you manage to put 10% down ($41,600) on a median priced home ($416,000) with a 30-year mortgage and a 5.5% interest rate, you’re looking at a monthly payment of $2,126. That’s not much higher than the current median for rent in the US. 

It depends on whose data you believe, but median rent estimates for June range from $1,876 to $2,045. In most major metro areas, it’s safe to put this number comfortably north of $2,000. 

To keep your housing payment capped at 30% of income, you need to make $80,000 a year. Median income in the US right now is closer to $50,000.

Enough said. 

The Bottom Line: As The Juice recently noted, on housing you’re either set or screwed. Millions of US households (51% to be exact) currently carry a mortgage with a rate under 4%. This makes a big difference in terms of budget affordability. 

While your options to buy a home today dwindle commensurate with how much cash you have saved and how much you earn, relatively affordable options do exist. 

For example, look to up-and-coming neighborhoods. Last month, The Juice used Buffalo, New York, where housing prices vary wildly by neighborhood on the city’s West Side. Within just a few blocks – literally – your mortgage payment can change by well over $1,000 a month. 

Check out that report and get creative in your own city or where you think you might want to live in pursuit of the last bastions of housing affordability. Because it appears they’re going away fast.

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