The Expert Podcast

We did some math on this in a prior video, but here comes National Review with an article that says a six-figure income is now required to buy just an average home, a median home. That may seem like a pretty extreme thing or, you know, a dramatic thing to say, but we did the math. If you make a hundred thousand dollars a year after taxes, you might take home 80 or 75. That's going to be roughly maybe six or six and a half thousand dollars a month in take-home pay. Well, your take-home pay has to buy all your gas, groceries, food, car payments, everything else. Well, the mortgage payment on a median price home right now could be four thousand dollars a month. A median price home is about four hundred and twenty thousand dollars to four hundred and forty thousand dollars, depending on which survey you look at. At eight percent, seven or eight percent mortgage plus taxes, that could be four thousand to forty-five hundred dollars a month. That only leaves you a couple grand to pay the rest of your bills. So, it's not out of the ordinary for somebody making a hundred thousand dollars to barely be able to afford and pay for a median home. It sounds like a lot, but that's a big deal. That's a major turn of events for the economy.

How much has that changed? Well, according to the report, home buyers must now earn 107,000 dollars to be able to service a mortgage payment in 2022. Just a year ago, it was only 73,000 dollars to meet a similar threshold. Look, that's one year later, and it went from 73,000 to 107,000. How much of an increase is that? That's almost a 50 percent increase. If you take 107,000 minus 73,000, that's 34,000 dollars more of an income that you need. If you take 34,000 over 73,000, that's almost 50 percent. So, the amount of income that's needed from 2021 to 2022 to buy a median home, just an average home, skyrocketed by 50 percent. That's going to have a big effect on the housing market, the economy, and even job security. But it may not change pricing that much. I think we're going to see volumes pull back significantly, volumes meaning the number of houses sold, but we might not see prices fall very dramatically at the national level. Certainly, some local markets might see some price adjustments, but not at the national level. Why not? Why aren't house prices going to go down? Well, here's the reason: it's like a game of musical chairs. There’s still a very large number of people trying to buy houses, but there aren't enough houses available. There's a shortage of anywhere between three and five million houses, depending on who you listen to, and that shortage is not going away. In fact, it's getting bigger because more people are coming into the housing market than the number of homes being purchased.

In fact, this housing slowdown, if you can call it that, is slowing down also the number of homes being built. If you're a home builder and you see this data, you're not going to be out there scrambling to build a bunch of new houses because you may not be able to sell them. So, this is going to have an even worse effect on the house price flow in the future. It may not take a year or two or three to kick in, but there may be some turmoil right now. But in 2025 or 2026, if you have two or three years of very low new home production and two or three years of more people coming into the housing market, it's only going to get worse.

There's another factor that we're doing another video on later this week that people aren't aware of. Up until the 1980s, homes that were built were designed to last a lifetime, to last forever. If you look at homes from the 50s, 60s, and 70s, they were made with real two-by-fours, not one-and-a-half by three-and-a-half. They were made using more quality goods, not fiberboard, pressboard, or OSB. And they were designed to last a lifetime. In fact, there are many neighborhoods from the 40s, 50s, and 60s where the houses are still standing. Sure, they have been remodeled and updated, and they have new roofs and that kind of thing, but the core bones of the house are still there. In the late 80s and early 90s, home construction changed their business model. They went to a model of building homes that were designed to only last 40 years, maybe 50 years. Well, if you do the math from 1990 plus 40 years, what does that come out to be? That’s 2030. That’s just a handful of years away—six years away, seven years away. So, all these homes that were built in the 90s, over the next 10 years, will now start to become untenable. You won’t be able to remodel them or fix them. You might have to rebuild them. And you're going to start having more losses from the housing stock because of the planned obsolescence. Look for another video that gets into more detail on that.

So, the housing market, although prices are up and everybody looks for a housing crash, some of it's wishful thinking because these are people that don't own a home and wish for homes to come down in price. Maybe wishful thinking, and it may not come to fruition. Let us know in the comments below what you think and how this might affect your decision on house shopping.