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Home Prices Now 7.6 Times Higher Than Median Income

Home Prices Now 7.6 Times Higher Than Median Income

May 20, 2024

Home Prices Now 7.6 Times Higher Than Median Income

Stark data has revealed that the median home now costs a staggering 7.6 times the median household income. This figure is nearly double the historic norm and surpasses the peak ratios seen during the 2008 housing bubble. With homeownership slipping further from reach, the Fed reports that Americans anticipate home prices to climb by a median of $20,000, a 5.1% increase in the ensuing year, marking the second highest expectation on record, surpassing even the speculative frenzy before the 2008 crisis.

The repercussions of this inflated market have hit the younger generation and working class the hardest, with many facing an unattainable housing ladder, the first 20 rungs of which seem to have vanished. Over one-fifth of renters are now forced to resort to skipping meals or selling personal items just to cover their rent. A sense of surrender is palpable among millennials, many of whom have resigned to perpetual renting, opting for fleeting pleasures like three-day Caribbean cruises over the prospect of building a substantial nest egg.

The core of this disenchantment is the cost of housing. The Federal Reserve's strategy of injecting trillions into the asset markets has inflated housing prices, a critical asset for Americans aiming to keep pace with escalating living costs. With only 20% of Americans owning stocks directly, real estate remains the primary vehicle for building net worth and securing a semblance of financial stability. However, since the onset of COVID-19, housing expenses have doubled to nearly $3,000 per month, and the income required to qualify for a median-priced home has skyrocketed into the six-figure range, relegating homeownership to a seemingly unattainable dream for many.

Since the Fed's aggressive monetary response to the pandemic, house prices have soared nearly 50%, outstripping the general rate of inflation. But the question remains: why have housing costs doubled when inflation has risen by only 20 to 35%, depending on the metrics used? This disparity is attributed to a confluence of factors: rising mortgage rates, increased home insurance premiums, escalating property taxes, and impending green mandates, which could add an estimated $31,000 to the average home price.

The Federal Reserve's interest rate hikes, intended to curb inflation, resulted in mortgage rates jumping from around 3% to over 7%. This change alone can translate into an additional $350,000 in interest over the life of a loan. Coupled with a 20% hike in home insurance and property tax increases tied to home values, the financial burden on prospective homeowners has become crushing.

Looking ahead, millions of Americans are anxiously awaiting relief in the form of lower mortgage rates or a reduction in home prices. However, with inflation showing signs of persistence, such reprieve may be years away, leaving the dream of homeownership tantalizingly out of reach for many.


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