Home Affordability Has Been Destroyed And It Is A Major Problem

To investors,

Housing affordability has hit the lowest point since 2007 according to a recent article in Bloomberg. Prashant Gopal writes:

“Owning a house is less affordable for average earners in the US than at anytime in 17 years.

The costs of a typical home — including mortgage payments, property insurance and taxes — consumed 35.1% of the average wage in the second quarter, the highest share since 2007 and up from 32.1% a year earlier, according to a new report from Attom.

Growth in expenses, along with mortgage rates hovering around 7%, have outpaced income gains as a persistent shortage of listings pushed the median home price to a record-high $360,000, Attom said. In more than a third of US markets, ownership costs ate up 43% of average local wages, far above the 28% considered to be a guideline for affordability.”

This coverage is timely because I published an interview with ResiClub’s Lance Lambert yesterday breaking down the four main contributors to the explosion in a lack of affordability.

According to Lance, here are the four major drivers:

1. Home prices exploded after demand skyrocketed and housing supply could not keep up. This imbalance in supply and demand led to the market overheating. We had never seen home prices go up 21% nationally in a single year, yet that is what happened.

2. Wage growth has not kept pace with the home price growth. Home prices are up about 51% so far in the 2020s, but wages are only up approximately 20% during the same timeline.

3. Mortgage rates have gone from the 2-3% range to the 6-8% range in about 2 years. This was created by the fastest interest rate hikes in history and has made the carrying costs of home ownership significantly higher.

4. Home insurance and home repair costs have drastically increased due to the inflation shock experienced across the US economy. From 2018 - 2021, only one time did a state see the average home insurance premium jump 10% or more in a single year. Compare this to last year, which saw 25 states have a 10% or more jump in home insurance premiums. A big driver of these increasing home insurance premiums is the rapid cost increase for home repairs, which Lance estimates is up approximately 50% over the last few years.

You can sign up for Lance’s daily analysis for free here: https://www.resiclubanalytics.com/

These inputs are important to watch because they will determine if housing affordability will get better or worse in the coming months. Why does housing affordability matter to this audience?

Other than it directly impacting home prices for you too, home affordability is likely one of the largest inputs to financial nihilism — the feeling many Americans have where they will never be able to get ahead.

This loss of hope drives higher degrees of gambling and risk-taking. It contributes to a lack of interest in seeing your local community thrive. It is hard to be productive when you can’t see a bright future ahead.

The American Dream was built on the idea that anyone could build a life of health, wealth, and happiness. You could come from any location, speak any language, pray to any higher power, and you would be able to create a living for yourself and own a home for your family.

There are millions of Americans who are wondering what happened to that dream. An easy way for us to avoid the American Dream turning into the American Nightmare is to work across the economy to bring home affordability back to attractive levels.

We must build more housing. We must use technology to lower home repair costs. We must leverage a free market interest rate to return the cost of capital to sane levels. And we must educate individuals on the various opportunities and strategies for them to get on the path to home ownership.

It is not easy to turn around a situation like this, but it is possible. And if there is one thing we have learned over the last few decades — never bet against America.

Hope you all have a great day. I will not be writing for the next two days due to 4th of July in the US. I will talk to everyone on Monday.

-Anthony Pompliano

Lance Lambert is the Co-Founder & Editor-in-Chief at ResiClub. He is also the former Real Estate Editor at Fortune Magazine, and is the foremost expert in residential real estate.

In this conversation, we talk about the 4 reasons why houses are so expensive, as it is the most unaffordable housing market we have had in history. This is a major crisis for the US economy, and people need to understand what it will take to get us out of this.

Listen on iTunes: Click here

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