Of Course Nobody Can Buy a House!

I’ve been reviewing housing recently, and I noticed a disturbing and non-sensible trend.

The average new house sells for around $300,000.  I should be more specific when I say “average”: that is the median house price.  If it were the mean, it might get distorted by a few very expensive luxury houses; but no, that is the median (middling) cost of a house sold in the past few years.  That seems very expensive to me, but I am assured by friends familiar with the market that it is a “very reasonable price for what you are getting”.  So their statement, taken at face value, that sounds reasonable.

Then  I looked at what the median income is for the population, and it looked like most younger persons’ median income is not too high.  Based on what I found, it looked like a typical income was around $26,000 per year in your 20’s and around $36,000 per year in your 30’s.  I did some more research (found an online calculator), and it looked like spending around 36% of your income on housing was considered the reasonable financial standard.

I plugged numbers into the online calculator to help me estimate how expensive a house a median person can reasonably afford, and depending on how much debt you already have to pay each month (e.g. a car payment, student loans), for the median incomes it usually suggested a house costing around $100,000 with a 30 year mortgage.  That sounded reasonable, since you would want to have your house paid off before retirement (usually around 60-65).

So I am left asking myself, who are these $300,000 houses being built for, and who is buying them?  Obviously, somebody with much more money than average (or people getting in over their heads), but it seems like the market’s production is not responding to the market’s needs.  The average houses being built are too expensive for the average person to buy and move into.  Even considering two incomes (which is a very risky thing to do), the outlook does not get much better.

So I am left with what I can only consider a serious problem: A median household is not able to afford a median new house.  I realize there may be older houses still on the market to take up some of the slack; but from where I sit, it looks like the housing market just makes no sense at all.  I think this problem is causing other serious problems in the economy, as well.  Having a place to live cannot be prohibitively expensive, and yet it is.  All the bells and whistles in the world aren’t going to help sell a house that is too expensive for anyone to afford in the first place.  When buying a home is too expensive, landlords of renters can raise their prices.  This is the ultimate source of our housing problems.

What obviously needs to be done is for somebody sensible to see that the market is broken and fix it by building houses for the people who can possibly buy them, but so long as our country clings to the ridiculous notion that “prices on houses can never fall”, that will never happen.  We do not need large, extravagant houses – we just need a place to live.

Supporting Links:

https://www.zillow.com/mortgage-calculator/house-affordability/ http://www.financialsamurai.com/median-income-by-age-and-sex-in-america/ https://fred.stlouisfed.org/series/MSPNHSUS

 

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