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Yesterday, the National Association of Home Builders released its May sentiment index. Builders are slightly more optimistic than last month — but “optimistic” here means a score of 34 out of 100. For reference, anything under 50 means most builders think conditions are poor. And the NAHB’s chief economist said it plainly: rising long-term rates will keep holding buyers back.
The chart tells you why. In 1985, the median American home cost $82,800. Median household income was $23,620. That’s a ratio of 3.5 to 1. A young couple with decent jobs could buy a house in three and a half years of gross income. Not easy — but doable.
Today, the median home is $414,900. Median income is $81,604. That’s a ratio of 5.1 to 1. And here’s the kicker — mortgage rates in 1985 were 12.4%. Today they’re 6.65%. Even with rates cut nearly in half over 40 years, homes are still less affordable because the price itself has outrun wages by so much.
Now... here’s what most people miss. That ratio hit 5.8 during the 2006 bubble — and then it crashed. Today we’re at 5.1 and climbing, but this time there’s no bubble to pop. Prices aren’t being driven by liar loans and flippers. They’re being driven by a simple shortage: 77% of existing homeowners are locked into mortgage rates below 5%. They’re not selling. And with war-driven inflation keeping rates above 6.5%, buyers can’t afford to buy what little inventory there is.
The median age of a first-time homebuyer is now 40. In the 1980s, it was 29. Your grandkids aren’t waiting because they’re lazy. They’re waiting because the math doesn’t work.
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