A New Housing Status Quo Amid A Dying Or Dead American Dream

You know the numbers on housing affordability. With interest rates still stubbornly hovering around 7% on a 30-year mortgage, they still suck: 

• A household making $280,000 a year can’t afford a median-priced home (using list price) of $1.2 million in Los Angeles.
• Using the same input as above, you need $120,000 down and you’ll pay a whopping $9,280 a month just to get a (median) middle of the road home in LA.
• To be able to afford the typical home in Las Vegas, you need to earn $135,500 a year, or about $11,293 a month.

For more color and context on those data points, see this recent installment of The Juice – Here’s How Outrageously Expensive It Is To Buy A House Right Now.

Things don’t look much better at the national median or even in traditionally less expensive markets. 

This is The Juice’s view of the landscape: 

• High interest rates are keeping homeowners with low interest rates from selling. Obviously. 
• The people taking out 7% loans are, in some cases, biting off more than they can chew, waiting for lower rates and a chance to refinance. 
• Many – and maybe most – others on the sidelines are waiting for rates to come down. 
• However, when and if they do, this flood of new buyers will likely push prices even higher. 
• In fact, The Juice thinks we’ll see housing prices hit another all-time record early in 2024, if not by the end of this year. 

We’ll save the data on current housing prices nationally and in select local markets for later this month when put some color around that prediction. So, do us a favor and tell a friend to subscribe to The Juice (and our other excellent newsletters).  

Today, let’s focus on some other numbers and dynamics that contribute to the bigger housing picture as well as a somewhat silver lining that kind of, sort of still exists. 

Because, let’s face reality, with the American dream basically dead for so many, the status quo we once knew on housing is also dead. 

The status quo used to be: 

• Rent while you save for a down payment. 
• When you’re ready to buy, maybe move out of the city or to an area less expensive than where you were renting. 
• Get a starter home. 
• Upgrade to a larger home, possibly to accommodate a growing family. 

Realtor.com recently released some thoughts and data that support and tie this story together. 

Here are the parts we found most important:

• They put the nation’s housing shortage at between 2.3 million and 6.5 million units. Of course, this goes beyond home ownership being a tough preposition for the relatively well off. It contributes to social ills such as homelessness and the inequality of the rich living side-by-side with people suffering on the streets. 
• Homes aren’t being built quickly enough, in part, because the cost to construct a new home is 30%-to-40% higher than it was before the pandemic. 
• There’s a shortage of starter homes. Realtor.com says this stings on both ends. Older people remain in their large homes because they can’t find anything smaller. And people just starting out have scant inventory to choose from. 

On the bright side, the analysis also notes that we’re building a ton of apartments. Close to one million new units are under construction. This could help bring down rents. But it’s not going to do much, if anything for homeowners, current or prospective. 

One other kind of, sort of bright side for buyers looking for size and space. 

A recent StorageCafe report notes that you can find larger homes and lot sizes in southern cities. In fact, seven of the ten cities with larger homes and/or lot sizes are in the south, with Raleigh, North Carolina, leading the way. 

In Raleigh, the typical single-family home sits on a 10,500 square foot lot, which easily beats the national median of 8,891 square feet. And the median home in Raleigh goes for $436,100, right around, depending on whose data you use, the national median. 

This still works out to a monthly payment – including taxes and insurance with 10% down at $3,372. This requires an annual salary of $134,880 or so to be considered affordable. 

You see why we’re pessimistic even when looking for bright sides and silver linings.  

The Bottom Line: We go back to the same undisputed bright sides. If you love rural living or smaller cities (like Toledo, Ohio!), you can score a home for considerably less than the median and secure a more manageable, if not comfortable monthly payment. 

To read about the places where $100,000 goes the furthest, including Toledo, go here. 

Then there are the Americans sitting pretty with sub-6% mortgages and paid off houses. They make up the majority of homeowners:

• 91.8% have a rate under 6%. 
• 82.4% less than 5%. 
• 62.0% below 4%. 
• And 23.5% crushing life at under 3%.

Even though they’re technically contributing to the housing crisis, you can’t blame them for their good timing. 

Let’s not forget about that generational wealth transfer everybody is talking about. Between now and 2045, boomers and the silent generation will pass down trillions in assets (some say as much as $84 trillion in assets) to members of Generation X and millennials. 

While this will help some people buy a home, it’s only set to make those who aren’t sitting pretty or set to cash in, all the more angry and uncertain. 

We certainly live in a feast or famine economy, populated with haves and have nots, especially when it comes to housing.

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