Housing affordability going down in the United States

Americans paying a larger portion of their income for housing than five years ago

More Americans own their homes than at any time in history. In fact, nearly 70% of all Americans now own their own home. This is a good thing, as home ownership leads to stable communities. That figure may soon be going down, however, as studies show that homes are rapidly becoming unaffordable for the public as a whole.

Five years ago, the American public paid an average of 19% of their monthly income on housing costs. This year, that figure has reached 21%. That may not seem much, but it is a ten percent increase. What’s to blame? Several different factors come into play to make homes less affordable. The stock market drop five years ago inspired a lot of people to take their money out of risky tech stocks and put it into other investments. Many elected to put it into real estate. The added burden of investors in the market on top of the home buyers who were already buying created a bit of a buying frenzy. This drove prices up to record levels. In some cities, housing prices have tripled in the past five years. In the Phoenix, Arizona area, housing prices are up 35% in the past year alone.

In addition to housing price increases, interest rates have gone up. Interest rates, which in 2003 hit lows not seen since the 1960’s, have been steadily rising ever since. For some buyers with adjustable rate mortgages, their payments have doubled in the past three years.

Those rates seem to be steadily increasing. As housing prices and interest rates have gone up, income has remained somewhat stagnant and has actually experienced a slight drop. This has led to the current situation, where more and more people cannot afford a home, and those who have one cannot afford to buy a larger or nicer one.

Experts in the real estate field expect a major correction in the markets soon. Real estate markets tend to eventually find an equilibrium point, since everyone needs a place to live. Eventually, housing prices will drop if people aren’t paying the asking price. Similarly, interest rates could drop again if the market becomes stagnant and people aren’t borrowing. Money is like any other commodity; it is expensive when a lot of people want it and inexpensive when there is little demand. If demand drops due to overpriced housing, or housing that is perceived to be overpriced, the cost of borrowing should drop as well.

These things take time, however. In the meantime, there are millions of people who need to buy houses, and they will either have to pay more than they can comfortably afford or they will have to do without. The bottom line here is that it seems that the percentage of Americans who own their own homes is peaking for the time being and will probably drop. Despite the cheering of politicians every time the rate goes up, the rate is usually not the result of anything one political party or administration does through its policies; the rate has been steadily rising for the past fifty years regardless of who is in office. Eventually, it will go up again.