Housing Prices Are Up, As Is Affordability

Published on: 09/14/2021

In this edition of Chart Talk, Tony Ogorek and Jeff Viksjo discuss why homes are more affordable today than they were 40 years ago.




Welcome to this edition of Chart Talk.  I’m Tony Ogorek.  I’m here with Portfolio Manager, Jeff Viksjo.  And today, Jeff, we have a really interesting chart which takes a look at the past 45-years, mortgages people have paid for houses, interest rates, inflation, and really it comes up with a rather interesting conclusion that’s probably counterintuitive for many people.



Yea so Tony, the second column of the chart shows the average mortgage going back since 1975.  In 1975, it was just $35,000.  Today, it’s almost ten times as much at $337,000.  So the idea would be, that houses are much less affordable today than they were 45-years ago.  But of course Tony, we also know that the interest rates on the mortgage rates have gone down significantly over the last 45-years.  So, the last column, it shows what your monthly payment is in today’s dollars, and you can see actually it’s cheaper today than it was 45-years ago.



Yea so Jeff, when you look at mortgage payments, principal and interest, and you look at the amount of money you are borrowing.  Two big factors play in, one is the inflation rate and the second is the interest rate.  Today, inflation is at very, very low rates.  Mortgage rates are the lowest they’ve been probably in a century.  So, when you combine both of those factors, you can take on a lot more debt than you have over the past 40-years, and still come up with an inflation adjusted monthly payment which is cheaper than it has been over the past 40-years.  So, just as inflation is sort of the silent thief of things, low interest rates really are a boom.  And that’s also one of the major reasons why home prices are up as much as they are.

Hopefully you’ve enjoyed this edition of Chart Talk.  We look forward to seeing you at our next talk.

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Sister Emily Bloom September 15 2021

Thank you. You make the financial topics easier to understand. Thank you for sharing your expertise with the public.