America is currently facing a crisis on the home front. As of the third quarter of 2024, the average home price has soared to a staggering $420,000—more than five times the median household income of $80,000. By comparison, four decades ago, the average home price was approximately $85,000, while the median household income stood at $28,000. Back in 1985, a household could earn the total cost of a home, on average, in just three years. Today, it takes roughly 5.25 years. Why are prices so high, and will relief ever come?
A multitude of factors contribute to this complex issue, but the most significant is likely the ongoing housing shortage. This is a classic case of supply and demand: there simply aren’t enough homes in the United States to meet the needs of its population, driving prices higher.
This shortage is rooted in several challenges, including a severe labor shortage in the trades, rising material costs, and persistent supply chain disruptions. Recently, however, institutional investors have become a notable factor. In the first quarter of 2024, large investors accounted for 14.8% of home purchases. These entities often aim to flip properties for profit or turn them into rentals. With substantial capital at their disposal, these investors frequently outbid the average buyer, offering amounts that most cannot compete with. Adding to the problem is the high-interest-rate environment of recent years. The current average rate for a 30-year fixed mortgage sits at 6.92%, discouraging homeowners from selling and giving up their locked-in lower rates.
It’s not all bad news, though. On his first day in office, Donald Trump signed a series of executive orders, including one mandating all executive departments and agencies to deliver “emergency price relief” aimed at expanding the housing supply and lowering costs. This directive specifically targets the regulatory requirements that account for approximately 25% of a home’s construction costs.
Opinions are divided on where mortgage rates are headed in 2025. Some predict rates will remain high due to the Federal Reserve’s cautious approach, while others suggest that if inflation reaches its target rate, interest rates could ease.
Americans are increasingly frustrated with overpriced housing, waiting for prices to fall or wages to rise. So far, however, neither has made significant progress.
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