- It costs the typical American family 26.3% of their yearly wages to own a house today.
- Homebuyers haven't had to devote that much for shelter since 2008, according to Attom.
- However, there are signs that the market may be about to cool down.
The last time it was this expensive for the average American to buy a house, the US was grappling with the worst economic crisis since the Great Depression.
After years of outsized demand for single-family homes, individual buyers and Wall Street investors alike are still pushing prices higher as they compete for the limited supply of properties nationwide.
Unchecked, this trend is fueling what may become an unsustainable situation as the cost of homeownership outpaces the rise in wages, according to Attom Data Solutions.
Home prices are climbing so fast that the typical American family making about $66,560 per year would have to dedicate 26.3% of their yearly salary to own a typical home, with a median home price of $320,000, last quarter, Attom analysts wrote in a report on Thursday. The percentage is up from 21.8% in the first quarter of 2021, marking the largest annual increase since at least 2005.
The rising percentage of income going toward housing puts Americans at risk of being house poor, or in a position where they must cut back on other necessities in order to afford their shelter. According to the US Bureau of Labor Statistics, housing costs above 28% of annual income would be unaffordable.
The last time Americans had to shell out this much of their salary for housing was the third quarter of 2008, when home prices were retreating from their peaks. At that time, the typical house was $183,900 and the average salary was $45,305, according to Attom.
While high home prices and waning affordability beg comparisons to the excesses leading to the Great Recession, there are some glaring differences. For example, soaring prices in the early- to mid-aughts were driven by easy debt and speculation, whereas it is the strained inventories that are driving markets today, according to Pacific Investment Management Co., a big owner of real estate and real estate debt.
Indeed, lenders today aren't going too far to help with affordability, irrespective of the record low mortgage rates they were able to offer over the past few years.
The Housing Credit Availability Index, a measure of lender risk tolerance compiled by the Urban Institute, reflected a value of 5.2 in the third quarter of 2021, a fraction of the 10 to 16 values common before the financial crisis, according to the think tank's housing finance report for February.
For those that can shoulder the costs of owning, the index suggests they "have pretty strong credit," said Janneke Ratcliffe, vice president at Urban Institute's Housing Finance Policy Center.
The seeds of this affordability crisis were planted during the last one, other experts say. It's what has not increased enough since 2008 that is preventing many Americans from affording their dream home today, according to Keren Horn, a economics professor at the University of Massachusetts, Boston.
"It's a sign that we haven't built enough housing since the Great Recession," said Horn.
The supply shortage today is so dire that it may even take the better part of a decade for builders to meet demand. The onset of Russia's war in Ukraine is making that problem even worse.
The good news for the average family looking to buy is that prices could soon start to level out.
Economists, including Horn, believe that the market is about to cool off as mortgage rates rise and the frenzy of demand calms.