Ep. 1800 - The Hidden Reasons Why You Can't Afford A House

**Matt Walsh** (0:00)
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That will be the median price of a home, not just new homes, but any home by 2050 Now put another way, if you have a child today, then by the time your child is looking for a place to live, they'd better have like $200,000 saved up for a down payment, and for the rest of their lives in all likelihood, they'll be paying off a debt that's completely insurmountable. And this is not a projection from some crackpot looking for attention. It's coming from one of the top housing economists in the nation. Quote, essentially in about 25 years, the national median home price will be $1 million. Lawrence Young, chief economist at the National Association of Realtors, set up a conference in Washington DC on Tuesday. It may be hard to envision that, but back in 1990, the national median price was $90,000. Young noted that even San Francisco, considered an exorbitantly priced real estate market at the time, had a median price of only $250,000 in 1990 Now for comparison, as of right now, the national median sales price for existing homes is roughly $430,000. So as high as housing prices are right now, you can expect them to be much higher, more than double in just a couple of decades. This economist, quote, use multiple scenarios to project home prices out into the future and says, each scenario pointed to roughly the same timeline to hit $1 million about 25 years. Now to be clear, although the economist determined that we'd hit $1 million as part of ordinary appreciation of home prices, inflation is not the only factor here. Inflation alone won't get us to this figure, and there's reason to believe that typical home prices will actually exceed $1 million by 2050 and probably buy a lot. In a moment, we'll talk about some of those reasons and what we can do about them. But first, I want to talk about the story of 31-year-old Micah Longmire. This is a true story. I found the details in a small online-only paper called The Missoula Currents. According to the paper, Micah earns a salary of $200,000 a year. That's a high salary by any measure, more than double the median household income in this country. The average lawyer in this country doesn't make $200,000. So you might think Micah is doing pretty well, all things considered. But after looking all over the country for more than two years, Micah and his wife determined that they couldn't afford to buy a home on their own, at least not without taking on a mortgage that they weren't sure they could afford. Yes, even though he's making a salary that puts him in the top 10% of American incomes, he was not able to lock down a home despite looking for two years in a variety of markets. In the end, Micah's solution was to pool some money together along with his wife's parents, and together they bought a $3,500 square foot, $600,000 home in Chattanooga, Tennessee for the entire family. Micah now lives with the in-laws, and as he put it, quote, I make $200,000 and I wouldn't have been able to buy a house by myself. That's ridiculous, and it is ridiculous. Now, you can take issue with the idea that Micah truly couldn't afford a home. Many of you listening to the show probably purchased a home with an income lower than $200,000. You might have even done that recently. And you might think that he could have picked a smaller house in a different area and everything would have been fine. But before I address that objection, I need to make the point that Micah's story is not unusual. Just a couple of days ago, Fitch, one of the big three global credit rating agencies downgraded the US home building sector from neutral to deteriorating because people are not buying homes anymore. 30-year mortgage rates are over 6 percent. Consumer sentiment, meaning how pessimistic people are about their finances, is at a record low. Going back to the 50s, even through the 2008 financial crisis, the surveys of consumer sentiment were not as dire as they are right now. So while it may be the case that people like Micah could theoretically purchase a home somewhere, if they're willing to make more compromises, the fact remains that they aren't doing that. Lots of people aren't doing that, and we need to figure out why. But I'm not cherry picking anecdotes or statistics here. Every possible indicator is sending the same signal. Here's another one. Real estate agents are quitting in droves right now. It's another thing you might not have heard about. This is data from the National Association of Realtors. It shows the number of members in the Realtors Association, the light blue, and the number of existing homes for sale, which is the darker line. From 2012 to 2022, membership in the Association grew every year, and now it's steadily declining. The Association of Realtors now has just 1.4 million members compared to 1.6 in October 2022 As the chart shows, for most of this century, there have been far more homes for sale than Realtors. That's the ratio you want. That's a healthy ratio. That hasn't been the case for several years now. Realtors are competing over a very small number of homes. On top of that, a recent legal settlement means that Realtors have to disclose their fee upfront, which is leading many home buyers to handle the process themselves, which also isn't helping things for the industry. To give you an idea of how quickly the housing market has become unaffordable, take a look at this chart from The Wall Street Journal just the other day. They're getting their data from the Internet Continental Exchange, Angie and the Labor Department. If you're buying a home now as opposed to 2019, then on average, you're paying 22 percent more in principle. This is just from 2019 Again, 35 percent more in interest, 31 percent more in property tax, 72 percent more in insurance, 85 percent more in home maintenance, and 175 percent more in emergency repairs. So your total annual bill is 40 percent higher than it would have been just six years ago.