Rising Housing Payments – In Perspective!

The below chart was circulating on Twitter recently – and it of course made potential homebuyers unnecessarily apprehensive.

Yes, payments have surged, but I want to put this in perspective.

1. Interest Rates: While rates have risen sharply from the lows we saw during the COVID crisis, they are only about 2% higher than where they were in 2015. And they are still low by historical standards – and lower than where they were nearly every year from 1971 – 2008!
2. Median Home Prices. This is the biggest AND MOST MISLEADING FACTOR. Payments are way up because the median home price is way up. But the median home price is NOT way up just because home values have risen – the median home price is way up too because Americans are buying much bigger homes in general. This is for two reasons: (1) It is far less profitable for builders to build smaller/starter homes nowadays for a variety of reasons including much higher “soft costs” (zoning compliance, permits, regulations, etc.); and (2) Americans are demanding larger and larger homes, particularly in a post-COVID world where so many more Americans work from home. The above chart would be a lot flatter if it compared the payments for the exact same home since 2015!
3. Average Incomes Have Climbed 34%! According to HUD, the National Median Family Income was only $65,800 in 2015, but it climbed to $79,900 by 2021 (latest year available). And – according to this report, wages have increased an additional 10% in 2022 – which would put the median income at close to $88,000 – a full 34% higher than 2015! And, in tech centric regions like Austin and the Bay Area, the income gains have been much greater, creating even more of an offset In any case, however you look at the data, these massive income gains clearly offset a large portion of the increase in housing payments.
4. Opportunity. Yes, payments are higher, but this has made the buying landscape FAR LESS COMPETITIVE for the first time in years. Buyers still in the market are getting lower prices, seller credits, and better terms overall.
5. Refinances. This is the other factor I cannot stress enough for buyers who are concerned about payments. I don’t think there is a macro pundit alive who does not believe that interest rates will plummet sometime in the next three to twenty-four months. So, buyers who are taking advantage of today’s less frothy market will be even better off when they refi into a lower rate – in the near future.

Jay Voorhees
Founder | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167