Adjusting for inflation since 1965, home prices have skyrocketed by 118%, while the median household income has lagged behind, increasing by just 15%. Home prices are traveling 7.6 times faster than income since 1965 and 3.1 times faster since 2008. The price-to-income ratio in approximately 90% of major metropolitan areas has soared above the maximum recommended ratio of 2.6 times.
Mortgage rates are nearing an astonishing 8%, their highest levels in 23 years. The average interest rate on a 30-year mortgage has just broken above 7.50%, its highest peak since the year 2000. These figures might give even the most seasoned homeowner pause. Adding to the complexity, even if home prices fell 30% from current levels, affordability would still be worse than pre-pandemic, illustrating the severity of the current situation.
Fear not, hopeful homeowners; there are still some pockets of affordability. Six of the 50 most populated U.S. metros have a price-to-income ratio within the recommended range. From Pittsburgh to Cincinnati, you might still find a place without breaking the bank.
Los Angeles, with its glitz and glamour, has become the least affordable city in the U.S., with the median home costing a staggering 9.8 times the median income. Six of the top nine least affordable cities in the U.S. are in California.
Truly, these are unprecedented times. The housing market affordability index is now 10% below the 2006 lows. The median house now costs a jaw-dropping 560% of the median income. Despite the fastest-rising interest rates in history and the stratospheric surge in home prices, the housing market remains robust. Supply is near its lowest, even as demand starts to wane.
What will the next few months bring? The quest for the American Dream might now require a space suit, but the adventure, it seems, is just beginning. This hard look at housing facts paints a complex and intriguing picture of a market in flux, an uncharted territory where history is being made every day.
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