Home Price Growth vs. Affordability

A deep dive into the U.S housing market over the past 40 years.

Author

Dustyn Haug
June 04, 2024

I hope this message finds you well! I came across some fascinating insights in the long-term trends of the U.S. housing market that I think you’ll find intriguing, especially if you’re considering long-term real estate investments.

Table of Contents

Four Decades of Home Price Increases

Over the past 40 years, U.S. home prices, as tracked by the Freddie Mac House Price Index, have experienced a substantial increase of 494%. This growth varies significantly by state, with Washington leading the pack at an 828% increase, followed by Oregon at 699%, and Rhode Island at 668%. Utah has experienced an increase of 610%. These are staggering numbers, showing substantial growth across several regions.

Comparison with Inflation and Income Growth

While home prices have skyrocketed, overall inflation and median U.S. household incomes have risen at a much slower pace—203% and 233% respectively. This disparity highlights a significant shift in the economic landscape of housing.

Assessing Housing Affordability in 2024

Despite these dramatic price increases, when we factor in current mortgage rates, the affordability of housing in 2024 isn't drastically different from what it was back in 1984. Back then, mortgage rates were between 13% to 15%, compared to around 7% today. This has somewhat mitigated the impact of rising home prices on affordability.

For a deeper dive on home affordability, we can compare mortgage rates, home prices, and non-mortgage costs (like property taxes and home insurance) against the median household income. This gives us a better idea of where housing affordability lands currently, as compared to the past 50+ years.

For a slightly different way of visualizing the data, the graph below shows how home prices, mortgage rates, and income has affected home affordability over past 17 years. While home prices have affected home affordably as of late, the biggest jump comes from mortgage rates.

Looking Ahead

It’s crucial to remember that the trajectory of home prices has not been a smooth upward journey and future trends may not mirror the past. Understanding these historical patterns is key to making informed decisions in real estate.

If you’re pondering how these insights could impact your property decisions, or if you need more detailed data to strategize your investments, let’s set up a time to discuss. This kind of information could be crucial in planning your next steps in the housing market.

Looking forward to our conversation!

Best regards,