Key Takeaways:
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- Home-buying affordability is the lowest since 1985.
- Millennials face higher home prices and stricter lending standards.
- Housing supply remains critically low, keeping prices high.
What Happened?
Home-buying affordability has plummeted to levels not seen since 1985, making it extremely challenging for millennials and Gen Zers to purchase starter homes.
The National Association of Realtors (NAR) revealed that in June 2024, a family needs an income of $110,544 to afford a median-priced home, compared to $49,152 in January 2021. Mortgage rates currently hover just below 6.5%, more than double the rates from 2021, while home prices have soared over 50% since 2019.
Why It Matters?
Millennials now face a tougher housing market than baby boomers did in the 1980s. Home prices are much higher relative to incomes today, and stricter lending standards make it harder to qualify for mortgages.
Unlike the 1980s, where high mortgage rates were the primary issue, today’s buyers are also grappling with a severe housing shortage. The combination of high prices and limited inventory exacerbates the affordability crisis. In June 2024, only 12% of consumers believed it was a good time to buy a home, compared to 72% in September 1985.
What’s Next?
Economists predict that affordability might improve slightly by the end of the year if borrowing rates ease and inventory increases. However, significant relief will only come with a substantial increase in home construction.
The current supply of new and existing single-family homes remains 12.5% below the average levels from 2017 to 2019. Without a boost in construction, high prices will persist, keeping many potential buyers sidelined. Watch for trends in new-home construction and shifts in borrowing rates as key indicators of future market conditions.
