400. The Ceiling

The average American home is now more unaffordable to the average American than at any point in recorded history. This is the current situation. The sentence does not appear to be heading anywhere better.

Ten years ago, the average new home cost three hundred and fifty thousand dollars and the mortgage rate was three and a half percent. Today, the average new home costs five hundred and forty thousand dollars and the mortgage rate is six and a half percent. Both numbers went up. They went up at the same time. The person who wishes to buy a home must contend with both simultaneously, because that is how mortgage payments are calculated. The payment is the product of both numbers combined, not an average of them.

(There is a calculation here that median household income has not doubled in ten years, because it has not. The monthly cost of an average new home has roughly doubled. The gap between income and housing cost is where the housing market currently lives. The gap has a name, which is "all-time record unaffordability." Previous records for unaffordability were set during periods when interest rates were in the high teens. The difference is that in those periods, home prices were also lower. The current situation has combined high prices with elevated rates in a way that has not been combined before. This is what the records now show.)

The situation has a structural cause. Interest rates rose to address inflation. Home prices did not fall when rates rose, because the people who owned homes did not want to sell into a market where buying a replacement would cost them significantly more per month. So they stayed. The inventory of homes available for sale remained low. The homes that were built and sold were priced according to what the market would bear, and what the market apparently bore was this. The market has been bearing it for some time. Builders are still building. Buyers are still buying, at reduced volume. The record still stands.

The average American looking to buy an average American home is looking at numbers that have never combined in this particular way. The home exists. The mortgage exists. The monthly payment required to connect the two is the part that has reached a level with no historical precedent. There will presumably be a point at which affordability improves. The data does not currently describe that point. The data describes this one.