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In this blog post, we will explore how home prices are inflating faster than incomes in America. The rising cost of single-family homes has remained one of the driving factors of inflation for years now. Rising housing costs are fueling the Consumer Price Index (CPI), as the shelter (owner and renters) component of the CPI is a third of the overall index. One of the biggest issues with rising housing costs is the burden of debt that is created in large part by investors that gets passed on to American consumers, which is unfair and is completely messed up. These factors make living in America difficult for many Americans that were born and raised here, as they no longer have the ability to flourish. There are many reasons why home prices are inflating faster than incomes in America, in which I plan to continue discuss beyond this blog post, but in this blog post we will examine a few key points together.
My Personal Experience Regarding How Home Prices Are Inflating Faster Than Incomes in America
I will give you an example of a personal experience I had regarding how home prices are inflating faster than incomes in America. Right at the start of the pandemic, I went through a divorce. There is never a good time to get a divorce, but the pandemic era would notably be up there as one of the worst times to get a divorce for various reasons. It was hard to predict what was going to happen to housing during those times, and many experts say you should not make a huge financial decision such as purchasing a single-family home during a divorce to protect yourself financially. On top of that, I was looking to purchase a smaller home with a more reasonable price point. Right before our divorce during the summer of 2020, single-family homes were not inflated to the point that you could not afford to buy one yet, but homes were increasing in price. We officially divorced in September 2020 which was six months after the declared start of the pandemic, and within months of our divorce housing drastically inflated.
There are various reasons as to why I think housing drastically inflated during the pandemic, but one reason was there was a downturn in the economy at the start of the pandemic in 2020, in which the government intervened quickly to prevent it. Many people do not even realize that this happened as it was not really talked about that much. Nevertheless, it was a sellers-market, and the sellers knew it. Sellers wanted potential buyers of single-family homes to decide in less than a week to buy the house, didn’t want buyers to do inspections, and wanted to do lease backs. Investors would up-bid on the same single-family home, driving up the costs in some cases by hundreds of thousands of dollars, which quickly and drastically increased the price of all housing where I live. Housing investors and sellers were brazen as they downright messed up the housing market, and they continue to pass on the debt burden they created in the housing market to unsuspecting Americans just so they can cancel their own debts which is not fair. They may have won as individuals, but due to them the nation as a whole lost. The housing market still remains unhealthy to this day due to their acts, and buyers are at a disadvantage.
In the meantime, I was only receiving a yearly 1% increase in my base rate of pay at my job, which was not matching the level of inflation that was occurring in the housing market which was discouraging. I felt that I was working to earn income to survive but not working to earn income to get ahead. Even though I wanted to buy a single-family home which was within my reach prior to the pandemic, I felt that I had no choice but to rent. The American identity that we heard growing up “with hard work and determination, your life will improve” was quickly slipping away along with my freedom, as much of my income needed to go to the landlord to benefit the landlord. These conditions made me ask myself, how will I ever get ahead? I was living in a nightmare rather than the American dream that many of our national hero’s talked about in years past. The housing market experienced a type of irrational exuberance that is unsustainable, especially for families living off of a single-family income. If you are reading this blog, it is likely that you have been examining the economy. There is a book that addresses Irrational Exuberance that I read a while back that discusses the economy as well as economic history in realistic viewpoints, in which you can purchase the book I read 2001 version here, or there is a lower cost 2016 version.
Facts Regarding How Home Prices Are Inflating Faster Than Incomes in America
Since many Americans have very little in their savings account due to various reasons but in large part due to an imbalance of earning a fair income as it relates to housing inflation, I have factored that into the following facts and figures. Keep in mind the following increasing cost of single-family home mortgage payments can also relate to the cost of rent, as rent has been inflating drastically in tandem with single-family homes. Increasing costs of rent in large part benefit the tag team of apartment landlords, single-family home landlords, and American property management software companies that are owned by private equity. This is at the expense of the American people, as people are left with fewer choices when their incomes do not cover the inflated cost of rent either at an apartment or at a single-family home that is owned by these billionaires.
Facts and Figures: Median Existing Home Prices in America
Analysis of the Data
- As you can see in the graph above, there is a sharp and drastic single-family home price increase during the pandemic from 2019-2023. Notably, the prices of single-family homes rose sharply and drastically from 2011-2023 as well, compared to the years prior to 2000.
- There is an 1592% Increase of Median Existing Home Prices from 1970-2023
- There is an 134% Increase of Median Existing Home Prices from 2011-2023
- There is a 43% Increase of Median Existing Home Prices from 2019-2023
- If you were to buy a home with the average 2023 Median Existing Home Price of $389,300, an example of the Principal and Interest Monthly Mortgage Payment would be as follows: $2590/month principal and interest payment with $0 downpayment on the single-family home, with a 30-year loan term, and a 7% Interest Rate. Keep in mind these facts and figures do not include property tax or homeowner’s insurance which have also been increasing in cost in recent years as well.
- Most economic experts agree that your housing costs should only be 30% of your income. If you were considering purchasing a home at the Median Cost of Existing Home Prices in 2023 of $389,300 and needed to pay a mortgage of $2590/month, you would need to need to make $8634/month, as 30% of $8634/month is a $2590/month mortgage payment. Again, keep in mind these facts and figures do not include property tax or homeowner’s insurance which would add to the cost of your monthly mortgage payment.
- Some areas have more housing inflation than others, so you would need to take home more income as stated in these facts and figures if the area that you live in has excessive single-family home inflation.
- Also, another factor to consider is that if you lose your job, you will not have any income coming in at all and will have difficulty in affording these monthly payments unless you have savings or can find another job quickly.
Facts and Figures: Median New Home Prices in America
Analysis of the Data
- As you can see in the graph above, there is a sharp and drastic single-family home price increase during the pandemic from 2019-2023. Notably, the prices of single-family homes rose sharply and drastically from 2011-2023 as well, compared to the years prior to 2000.
- There is an 1732% Increase of Median New Home Prices from 1970-2023
- There is an 89% Increase of Median New Home Prices from 2011-2023
- There is a 33% Increase of Median New Home Prices from 2019-2023
- If you were to buy a home with the average 2023 Median New Home Prices of $428,600, an example of the Principal and Interest Monthly Mortgage Payment would be as follows: $2851/month principal and interest payment with $0 down payment on the single-family home, with a 30-year loan term, and a 7% Interest Rate. Keep in mind these facts and figures do not include property tax or homeowner’s insurance which have also been increasing in cost in recent years as well.
- Most economic experts agree that your housing costs should only be 30% of your income. If you were considering purchasing a home at the Median Cost of New Home Prices in 2023 of $428,600 and needed to pay a mortgage of $2851/month, you would need to make $9504/month, as 30% of $9504/month is a $2851/month mortgage payment. Again, keep in mind these facts and figures do not include property tax or homeowner’s insurance which would add to the cost of your monthly mortgage payment.
- Some areas have more housing inflation than others, so you would need to take home more income as stated in these facts and figures if the area that you live in has excessive single-family home inflation.
- Also, another factor to consider is that if you lose your job, you will not have any income coming in at all and will have difficulty in affording these monthly payments unless you have savings or can find another job quickly.
Facts and Figures: Median Household Income in the America
Analysis of the Data
- Some but not all of the employers started to catch on to the inflated conditions in America, as they started to increase income. There was a steady 55% Increase in Median Household Income in the United States from 2010-2023 which is good but doesn’t quite cut it with the parallel drastic price increase in single-family homes.
- As you can see in the above chart, the Median Household Income steadily rose, but did not inflate as drastically with sharp increases as you can see in the New and Existing Home Median Price charts above.
- Most economic experts agree that your housing costs should only be 30% of your income. If you make the 2023 Median Household Income in the United States of $77,719/year or $5978/month, 30% of that income is a $1793/month mortgage payment. As you can see in analysis of the data above, many Americans are not earning enough to afford the 2023 New and Existing Home Median Price points.
- Keep in mind that $77,719 is the Median Household Income in the United States, so there are many people in America taking home less than this income.
- Some but not all employers increased salaries, which is not consistent across the board for all employees which is discouraging, unfair, and unjust for many Americans.
The final price of single-family home’s matter. The pace of housing price inflation is irrational, irresponsible, unhealthy, is not sustainable, and does not make America a better place to live.
In reviewing the analysis of single-family housing inflation as it compares to household incomes in America, I hope you will be able to see that something needs to give as this is an unsustainable path and is not working for many people that live in this country. My hope in writing this blog is to make America a better place to live, and more affordable again. I have written a Resource page to help people in need, as well as a Basic Bills Tracker and Budget Planner in which you can find directly on my blog Shop page and on Etsy.