Wednesday, December 21, 2022

Home On The Range Is Now Out Of Range

 The foundation of the American Dream is buying a home of one's own, most commonly by putting 10-15% down and financing the rest with a 30-year fixed mortgage. This dream is now out of reach for most middle class Americans.

For one, prices have soared 50% in just 3 years (chart below). Incomes most certainly haven't.

Case Schiller National Home Price Index

Making things even worse, mortgage interest rates have also jumped. It now costs twice as much to make a typical mortgage payment than in 2020 (chart below).

This situation has put a dampener on new home sales;  new homes for sale are now at the highest level since the real estate bubble back in 2006 (which precipitated the Debt Crisis of 2008-10).

New One Family Homes For Sale

The median home price now stands at $455.000, massively up from $318.000 just three years ago.  Since shelter costs make up 32% of the Consumer Price Index basket, bringing down home prices is crucial in controlling inflation.  Give it another few months.. builders will eventually have to start selling inventory at lower prices.  High interest rates are making things difficult for them too - they can't carry their inventory easily any more.


  1. There is no requirement that housing should be 'affordable'. We are increasingly becoming a renter class society. Builders simply can't build homes at prices below their costs. I simply don't see input costs going down from this level.

    1. Thanks for the comment A. Well, sure it is a requirement that affordable housing is available to society at large, otherwise an ever larger portion of disposable income will go towards covering shelter expenses and/or shut out younger generations from home ownership. As for rents, they are directly related to housing prices - home prices go up and so do rents.

      Builders of course can't sell below cost. And why did costs go up? Because the Fed/Treasury created huge inflation due to unprecedented money printing. Not the builders' fault of course... but they will end up paying the price, anyway.