The dream of homeownership is slipping further away for many Americans, as a recent study from Clever Real Estate indicates an alarming trend: home prices have been outpacing inflation for over six decades, drastically altering the economic landscape for younger generations. Millennials, in particular, have felt the sting, with homes now almost twice as costly for them than for baby boomers at the same age, after adjusting for income.
In a stark comparison, the median new home in 1985 carried a price tag of $83,200, roughly 3.5 times the median household income of $23,620 at that time. Fast forward to 2022, and that median home price soars to $468,000, which is a staggering 6.3 times the median household income of $74,580, according to historical data presented by Clever Real Estate. The implications are stark: for today's homes to match the affordability of those in 1985, median household incomes would need a near doubling, reaching $134,000 annually.
Forward-looking projections gleaned from the same analysis by Clever Real Estate predict a further squeeze on the American dream. Should current trends persist, the cost of the median home in 2030 is expected to be 6.9 times that of the median household income, and by 2050 an unsustainable 8.4 times. Ezra Haber Glenn, a lecturer for the Department of Urban Studies and Planning at MIT, emphasized in an interview, "Unlike many things we buy, housing supply is often limited due to artificial factors like zoning or prohibitive land costs," pointing to systemic issues thwarting a rapid response to burgeoning demand.
Geographically, the increase in housing prices since 2000 varies widely. Hawaii has encountered a 309% surge, with the typical home now demanding $832,000, closely pursued by California with a 259% rise. Conversely, locales such as Louisiana, Illinois, and Michigan have recorded increases below 100%. In major metropolises such as Miami and Los Angeles, figures have tripled or more. This stratification, if unaddressed, could lead to significant population shifts as affordability dictates migrations.
However, a silver lining emerged in 2023, according to the Clever study, possibly signaling hope for future buyers. Home prices climbed by a mere 2.6% compared to inflation's 3.3% growth. This is believed to be an outcome of policy interventions where interest rate hikes led to a dampening of homebuyer exuberance, thereby tempering the home price ascent to a degree.
