In 1997, a 7.18% mortgage on a median-priced home absorbed just 23% of typical earnings, compared to 31% today. While median household income expanded by 136% over the past nearly three decades, home values surged by 228% to reach $422,700. Furthermore, robust capital demands for artificial intelligence and infrastructure development are driving competition for funding, which reinforces high Treasury yields and sustains expensive home financing.
Key points
Homeownership today takes up a substantially higher percentage of household income than i…: Homeownership today takes up a substantially higher percentage of household income than it did during identical interest rate environments decades ago.
Pandemic-era bidding wars escalated property values that failed to drop enough once borro…: Pandemic-era bidding wars escalated property values that failed to drop enough once borrowing costs surged back up from historic lows.
Yields on 10-year Treasury bonds remain elevated due to persistent inflation, extensive f…: Yields on 10-year Treasury bonds remain elevated due to persistent inflation, extensive federal borrowing, and massive infrastructure investments.
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Mortgage rates around 7% may seem prohibitively expensive to today's homebuyers, especially after more than two decades of much lower rates. Historically, though, they're not unusual.
The average 30-year fixed mortgage rate has been about 7.7% since Freddie Mac began tracking it in 1971, slightly higher than today's rate of roughly 7.2%.
But if buying a home feels more expensive today than it did a generation ago, that's because it is.
Home prices have risen much faster than incomes, leaving buyers facing larger mortgage payments and down payments that can equal a year's salary.
"A 7% mortgage rate isn't historically outrageous, but a 7% mortgage on today's home prices is a completely different animal," says Corinna Rose, a certified financial planner at Bell Investment Advisors in the San Francisco Bay area.
Even at the same mortgage rate, buying a median-priced home today consumes a substantially larger share of household income than it did nearly 30 years ago, leaving less money for everything else.
How much more expensive is buying a home today?
To see how homebuying costs have changed, consider…
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