Happy National Fair Housing Month (“A Fundamental Right, Year-Round”; for Americans dumb enough to work: the “fundamental right” is to pay taxes so that others can relax in public housing) to those who celebrate.
Recent message from a friend who was smart enough to sell everything in Maskachusetts and buy in Texas in early 2009:
My contrarian view: Real Estate prices are at an all time low….. if measured in gold
Given that peasants can’t afford to buy at current prices/mortgage rates, my first reaction was “this is dumb”. On the other hand, I think my friend is closing in on billionaire status due to his previous real estate investments so maybe it is me who is dumb.
There is some support for his theory from this chart (source):
Does this make sense, though? Gold can be purchased by anyone in the world as an investment or for decoration. It is easy to transport. Residential real estate is impossible to transport and most of it has to be purchased by or rented by someone who lives where the real estate is. Rich people in Switzerland, India, San Francisco, Miami, and Singapore might buy up all of the world’s gold, but they’re not going to pay anything for a house in Detroit.
We’re now at a point where it takes 40-45% of a median household income to pay the mortgage on a median-priced house (source), i.e., back to the situation circa 2006 at the peak of the real estate bubble that burst in 2008:
This reflects the prevalance of two-income households since it looks at median household income. In the old days, the man worked and the woman stayed home (those days were so old we could tell the difference between a man and a woman!). Now everyone is in the workforce, except those smart enough to live in public housing, and the monetary fruits of all that extra toil are scooped up by real property owners. Median household income is a mixture of single-income and dual-income households. Houses are priced right now to be a stretch for the median household, which I guess means that they’re affordable for median two-income households and entirely unaffordable for a median one-income household. I asked ChatGPT “What’s the difference in median household income for one-income vs. two-income households?” and it came back with $70,137 for one-earner “family” and $127,256 for two-earner families from Census ACS data, cautioning that “Family is narrower than household. A household can be one person, roommates, an unmarried couple, etc., while a family is related people living together.” It added “For context, the overall 2024 median household income was $83,730.”
So… I’m pretty sure that my friend is wrong, which makes me+Google+ChatGPT smarter than a billionaire! There’s a first time for everything.
Also from my friend, bad news for people who love open borders and/or high birthrates, both of which necessitate new housing construction:
on the construction side, prices went crazy during [coronapanic] and never came down. It is now about 50% more expensive to built anything as compared to 2019.
Philip, did you convert this blog to LLM? Why does this post references 2006 graphics from Atlanta Fed which say that home median price is $231,663 ? Hope it is not a time machine malfunctioning.
perplexed. I’m sorry that you weren’t able to follow the link cited in the original post: https://www.atlantafed.org/research-and-data/data/home-ownership-affordability-monitor
If you are able to view the link, you’ll see that the cited chart covers Feb 2005 through Feb 2026.
I highlighted a 2006 date because that’s the last time median households had to pay up to the extent that they are now.
Point taken. This blog is not a light reading and I ought to read it thoroughly. Some median home prices can be explained by wealthier Americans escaping pricey blue states to neighboring freer and remote free states and wealthy foreigners moving into blue caliphates. Bubble of 2008 was driven by an easy credit for unqualified households. I think that the credit is tighter now; it may become more available soon and your point will become more pronounced.
Current home prices are not indicative of the whole real estate situation as large majority of homes are not on the market.
“Buy land, they’re not making it anymore” — M. Twain or W. Rogers depending on which AI you ask.
I don’t understand where all the capital is coming from to give people mortgages (never had one myself, I’d almost rather pay taxes to the government than some bank). Have they, in the style of 1984, redefined “subprime” and “jumbo”? Follow the money.
I recently saw a 4X flip in Richmond, VA from $250K to $1M in one year of busy flipping. Took over 30 days but it sold. People claim this isn’t a bubble, it is 40 year old Millennials so anxious to fledge the nest they lose all reason and overspend while waiving inspections. My opinion, worth $0.00 due to the elimination of the penny, that is a bubble, maybe different conditions than ’08. It will be interesting to see what breaks it.
Of course tariffs and threats against our best neighbor and major supplier of lumber had no affect on new housing or flipping costs
Silicon valley is quite attainable for the power couple of fiction. In reality, the wife is either making 1/10 as an influencer/teacher/secretary or the husband is paying for everything in the divorce. It’s all on the husband. Don’t forget to vote liberal.