Boomers can’t help but share horror stories about the early 1980s interest rates – when mortgage rates approached 19%.
We literally can’t help it, as it was something we were told we had to do when we attended boomer school.
1980s Teacher: “Jay, in 40 years, every time you see a Millennial or an Xer, I want you to tell horror stories about today’s high interest rates.”
1980s Jay: “OK, but can I also complain about the even worse horrors of new wave music, shoulder pads, leg warmers, big hair, and spandex workout clothes?”
Was 1981 Actually Worse When You Account for the Lower Median Home Price?
Today’s analysts love to tell us boomers though that things were not actually worse in 1981 because the median home value was only $69,000 – compared to $394,000 today.
With 20% down and an 18% interest rate, the mortgage payment for a median home was $831 in 1981.
This compares to a payment of about $2,100 today (for 20% down at 7%).
BUT – if you adjust 1981’s $831 payment for inflation, you get a payment of over $2,950 ($850 HIGHER than today’s median home payment).
So, I remain confused…
And – let’s not forget that today’s median home is also much larger and nicer too, with far more amenities (boomers were lucky to have indoor plumbing, let alone dual-pane windows, extra bedrooms and baths, built-in Wi-Fi, hardwood, high-end appliances, etc.).
Index for Homebuying Conditions Hit All-Time Low!
Be that as it may, the Kobeissi Letter, posted this on X today: Homebuyer conditions for US consumers have declined to an all-time low in June 2024. I recommend reading the entire post, but he further said: “The index of buying conditions is now at 27 points, below the previous all-time low recorded in the 1980s.” He also showed a table that clearly illustrates how much worse “buying conditions” are now relative to the 1980s.
Pending Home Sales Index Even Worse!
A few weeks ago, Kobeissi also posted this: Pending US Home Sales dropped to 72.3 in April, lowest reading since the beginning of the pandemic in 2020… Pending home sales contraction was recorded in ALL US regions. Aside from 2020, this was the largest drop in the indicator in 22 years. He included the table below.
So, Why Is This a Good Thing?
The housing market has never been this slow or stagnant. So, if you have made it through this market, you can make it through anything.
In addition, it looks like we have nowhere to go but up. If the market even returns halfway to average volume (not back to normal, just halfway to “normal”), we will all be swamped in business.
And – for those of us in the mortgage business, the future is even rosier when you consider that refinances could very likely come back along with purchases.
So, hang there, agents and loan officers, the future is bright…at some point.
Housing Beats Inflation
Here’s some additional positive news we might want to share with clients: Housing Beats Inflation!
That $69,000 median home price is $245,000 in today’s dollars, adjusted for inflation. And that is far less than today’s median home price of $394,000.
Of course, you might not mention that today’s median homes are a lot larger and nicer, as I pointed out above, but still. 😊
Housing is and always has been an excellent inflation hedge!
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