Are Homes Less Affordable Today Than In Past Decades?

Dated: August 12 2021

Views: 23

Are Houses Less Affordable Than They Were in Past Decades?

Obviously, the price of a home has appreciated dramatically over the last 45 years. So have the prices of milk, bread, and just about every other consumable. Prices rise over time – we know it as inflation.

However, when we look at housing, price is just one component that makes up the monthly cost of the home. Another key factor is the mortgage rate at the time of purchase.

Let’s look back at the cost of a home over the last five decades and adjust it for inflation by converting that cost to 2021 dollars. Here’s the methodology for each data point of the table below:

  • Mortgage Amount: Take the median sales price at the end of the second quarter of each year as reported by the Fed and assume that the buyer made a 10% down payment.
  • Mortgage Rate: Look at the monthly 30-year fixed rate for June of that year as reported by Freddie Mac.
  • P&I: Use a mortgage calculator to determine the monthly principal and interest on the loan.
  • In 2021 Dollars: Use an inflation calculator to determine what each payment would be when adjusted for inflation. Green means the homes were less expensive than today. Red means they were more expensive.

Are Houses Less Affordable Than They Were in Past Decades? | Keeping Current MattersAs the chart shows, when adjusted for inflation, there were only two times in the last 45 years that it was less expensive to own a home than it is today.

  1. Last year: Prices saw strong appreciation over the last year and mortgage rates have remained relatively flat. Therefore, affordability weakened.
  2. 2010: Home values plummeted after the housing crash 15 years ago. One-third of all sales were distressed properties (foreclosures or short sales). They sold at major discounts and negatively impacted the value of surrounding homes – of course homes were more affordable then.

At every other point, even in 1975, it was more expensive to buy a home than it is today.

Bottom Line

If you want to buy a home, don’t let the headlines about affordability discourage you. You can’t get the deal your friend got last year, but you will get a better deal than your parents did 20 years ago and your grandparents did 40 years ago.

Blog author image

Jesse Grathoff

Why would you hire me? You wouldn’t. I’m here to be your partner. To work WITH you. I’m an expert guide that will walk you through the process and act as your c....

Latest Blog Posts

The Truth About Today’s Home Buyer Demand

When it comes to the latest news in real estate, there are a lot of sensational headlines in the media. In times like this, when it can be hard to know what to believe, put your trust in the

Read More

Reasons Considering Selling This Fall Is A Good Idea

If you’re trying to decide when to sell your house, there may not be a better time to list than right now. The ultimate sellers’ market we’re in today won’t last

Read More

The Difference in Net Worth Between Renters and Homeowners Is Widening in 2021

Becoming financially secure is an important goal for many people today, but some don’t realize just how much homeownership can help them achieve that dream. A recent report, The

Read More

What Buyers and Seller Should Know About the Appraisal Gap

It’s economy 101 – when supply is low and demand is high, prices naturally rise. That’s what’s happening in today’s housing market. Home prices are appreciating

Read More