Is this the Most Unaffordable Time to Buy a Home? The Answer May Surprise You!

Baby boomers actually had it worse, depending on when they purchased their home. On average, buyers are spending about a third of their income on their mortgage payment in 2023, which is not even close to how unaffordable it was to buy a home in the early 1980’s. In the Fall of 1981 it took over half of the typical buyer’s income to pay their mortgage payment. With that said, it is important to point out, that besides the late 1970’s through the mid 1980’s, buying a home now has never been more unaffordable, when looking at data going back 50 years.

To figure out how affordable buying a home has been over the past 50 years, the Realtor.com data team analyzed data going back to 1973. They looked at monthly existing single-family home prices from the National Association of Realtors®, weekly mortgage interest rates for 30-year fixed loans from Freddie Mac, and median annual household income from the U.S. Census Bureau. Then they calculated the typical mortgage payment of a buyer taking out a loan on the median-priced home and what percentage of their household income that would eat up. The following chart was created using that information.

T hen Versus Now (Nationally)

In 1981 the typical single family home cost was about $66,000, the average interest rate was about 18% and the average annual household income was about $19,000. That compares to now when the typical home cost is $410,000, the average interest rate is 6-7% and the average annual household income is about $74,000.

There are some similarities between then and now. Inflation was soaring in the early 80s, which led the Federal Reserve to raise interest rates, which led to fewer home sales. However, interest rates were raised much higher then than now, which contributed to a full blown recession, whereas, we have escaped that so far now. It is interesting to note that affordability tends to be better following a recession or during a pandemic when interest rates tend to be lower.

Bottom Line

It is easy to forget how important interest rates are to affordability. Historically, affordability was good from about 2008 until early 2022 due to low interest rates. Rapidly raising interest rates the past year has had a significant impact on affordability, but even so, housing is more affordable now than in the late 1970’s through the early 1980’s.

Source: Realtor.com