“For homes to be as affordable today as they were in 1985, the median household would need to earn $134,000 per year— nearly double the actual median of $74,580.” A Chat with a Market Analyst We dug into several aspects of the research and talked with Trent Seigfried, data analyst with Clever Real Estate. The data confirms that housing prices have climbed at an exponential rate, so we asked Trent what he found most surprising about the research results. He responded, “If home price growth kept pace with the growth in other prices such as food and energy since 1963, the median American home would cost only $177,511 today, compared to the $431,000 it actually costs, according to Federal Reserve data. That would mean homes would be affordable to a much larger percentage of the American public, and almost all households would have access to, at the very least, starter homes. If we use the thumbnail of a 2.6 times annual household income multiplier, the median household income today (roughly $74,000) would be able to afford the typical home with money to spare.” Supply and Demand There are many factors that go into inflation in general, and the housing market in particular. Supply and demand sets pricing, and that means significant leverage for buyers or sellers, depending on where the market stands. The analysis looked at major markets throughout the United States to get a better idea of how inflation
has contributed to the challenges buyers are facing. It found some outliers, such as Hawaii, whose average home price has quadrupled since 2000, with a 309% increase. On the other end of the spectrum, Louisiana is more affordable, yet has still seen an 86% increase. For agents, buyers, and sellers, that means a house that sold for $203,000 in Hawaii 24 years ago, would now be valued at over $831K. In Louisiana, the associated values averaged $104K versus today’s $194K. Trent says, “For areas where supply and demand are at least somewhat in balance, I would point to the metros we evaluated that have seen the smallest property value increase since 2000. These would include Cleveland (78% home value growth since 2000), New Orleans (78% growth), and Detroit (83% growth).” Investment Properties While much of this research is focused on the ability to afford even a starter home, investment properties are a key component to market fluctuations—and a hotly disputed topic within the industry. Investors who buy up properties to use as leased office space, monthly rentals, or short-term vacation rentals can reduce availability for other potential buyers. While these investors are still impacted by supply and demand, as well as interest rates, they often have more cash at their disposal. They may also use existing properties as a tool against inflation by raising rents and/or selling off properties with a jump in value. In some areas, local governments are cracking down on the number of rentals, but investment buyers aren’t going anywhere anytime soon. Trent reports, “For an upcoming study on short-term rentals, we’re partnering with Rabbu to identify metro areas where there is a strong investment potential. One aspect that was surprising
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