When you buy a home in the US,
there is a basic promise:
that home values will go up over time.
And that is what you're seeing on this chart.
Let’s adjust it for inflation...
ok...
jerkier, but still basically goes up.
The story goes like this:
Money, by itself, loses value over time - that's inflation.
But if you own your home in the US,
you own an asset that is appreciating in value.
Buying it probably required you to save a bunch of money,
and also borrow a lot of money,
which you need to pay back over time;
as opposed to renting your home,
which basically just requires rent.
But: now you own it.
It could be collateral, if you ever need money,
like to start a business
or to send your kids to college...
One day you might sell it for more than you bought it...
But also: stability.
Peace of mind.
“So that you may maintain your place in society.”
You get it.
If we look at the middle 60%
of the US population in terms of wealth, the middle class,
the bulk of the wealth held by that group
is made up of the homes they live in.
It's a big part of why we think of homeownership
as the ticket to financial stability in the US:
to securing, and then building, your own wealth.
But the barriers to buying a home in
the US are getting higher.
So, how much higher, exactly?
And if you can't buy a home,
what does that mean for your future?
So first, let's go back to the median US
housing price over the past 50 years, up to 2022.
And now add income onto it.
Yeah.
Median wages have not kept pace
with the increase in the cost of housing.
This is Mechele Dickerson.
She studies...
Why it’s become so hard for lower-income
and middle-income people to become
and remain middle class now.
Let's go back about 50 years
and look at a couple whose household income is
exactly the national US median at that time:
In 1972 money, about $10,000.
Imagine, right.
They want to buy a house.
The median US home price at that time was about $29,000.
That is about three times their income.
Before the 1980s, it was possible for a young person
to graduate from high school, find a job that was a full time,
40-hour-a-week job with benefits
that paid them enough for them to be able to buy a home.
Now let's go 50 years forward and run those numbers for 2022:
median income, median home price.
This house is more than six times this household's income.
So that is what we're looking at
when we go back to that chart of income and housing prices --
again, adjusted for inflation --
and compare this gap, to this gap.
Now, as for the home prices themselves.
Let's zoom in to make that data easier to see...
bring it up to date...
You can see that the prices are starting
to go down a little bit in 2023.
But part of why they got so high in the first place
is a lack of supply.
This chart shows what's called the “homeowner vacancy rate”
over about 70 years.
It's the percent of homes in the US
that are actually for sale.
And it's currently the lowest
since we started collecting data.
And that is partly the result of restrictive “zoning laws”:
locally-set rules, all across the US,
that regulate things like where homes can and can't be built,
how many units a building can have in it,
and how densely housing can be built.
It leads to fewer homes getting built,
which leads to fewer homes to buy.
As for the homes that are for sale,
that's what we're looking at here.
This chart splits all homes on the market
in the US into tiers by price.
So these are the lower cost homes, and these are the higher cost homes.
And it tracks over time
what percentage of the market each tier represents.
You can see that over the past few years, homes that cost
less than $200,000 have made up less
and less of what's available, and homes
above half a million, or even $1,000,000,
are representing a greater
and greater share of what's for sale.
So: housing in the US is scarce, and it's expensive.
But we're actually missing
a really important piece of the story here.
And we’ll talk about that after this quick message.
Student loans can really make you sweat.
Only one in three students understand
the financial terms of their loans.
And nearly half of federal student loan borrowers
don't know how much they owe or who they owe it to.
So how can borrowers go from confused to confident?
It might sound obvious, but research shows a strong connection
between financial literacy
and successful student debt management.
So let's build out a financial literacy toolkit.
First thing to consider is the numbers.
Find out how much you owe and what your interest rate is.
Prioritize paying off the loans
with the highest interest rate first.
Second is to learn the terminology.
This helps you understand what your options are.
For example, auto debit is when you set up
automatic monthly payments,
which may reduce your interest rate by 0.25%.
Bonus tip:
Call your lender and see if you can have your payments
go directly towards your principal, which is the amount of money you borrowed,
so you can pay off your loans faster.
Look into refinancing.
That's combining loans into one with a new lender
potentially also getting a lower interest rate.
Find out if you qualify for student loan forgiveness.
That way you can have
some or all of your federal loans lifted.
And the last thing in the toolkit: Making the plan.
Follow through on the approach that works for you.
Maybe you qualify for the SAVE plan.
Or maybe you can make even higher monthly payments
to prevent more interest from accruing.
Make a plan that fits within your financial goals.
By understanding your student loans,
you can take charge of them.
Learn more at secret.com/moneymoves.
OK. Let's revisit the two parts of a home purchase.
First, you pay some percentage of the cost of the home up front.
Maybe 5%, maybe 20%: the down payment.
And the rest of the money you will need to borrow.
This is the mortgage.
You'll pay that back in monthly payments.
But the size of those payments can vary a lot
depending on the interest rate of the loan.
This chart shows the average interest rate
of a common type of mortgage over the past 50 years.
In the long term, it's mostly been going down.
A lower mortgage interest rate means lower monthly payments.
So: while this chart, of housing prices,
told a story of it getting harder to buy a house over time,
the interest rate chart seems to tell a different story:
of very high and burdensome interest rates at one point,
and mostly lower and lower interest rates over time.
So now the story is slightly more complicated,
and if we look at them on the same timeline,
they seem to kind of go in opposite directions.
Until they don't.
Let's just look at the recent past.
In 2020, a pandemic was happening
and lots of people suddenly wanted to move,
and home prices started to shoot up.
In 2022, as the US government tried to slow down inflation,
interest rates began to shoot up.
And now they're both still pretty high.
And not only that: Because a lot of current homeowners
have mortgage interest rates down in this range --
the 3%, 4%, 5% zone --
it means that, since selling their home might mean
having to buy a new one at an interest rate up here,
fewer people are selling their homes.
It helps keep this, that homeowner vacancy rate, low.
And it keeps home prices high.
And by the way, all these barriers to homebuying
are exacerbated for people of color, who are more likely
to be denied mortgage loans, regardless of income.
The website Zillow
looks at several of the factors we've talked about,
including home prices, income, mortgage rates,
and it calculates the monthly burden
on the average new homeowner.
According to them, that burden is close
to the highest on record.
There are lots more factors at play
here, but overall,
especially if you're a young person in the US, it is natural
to feel discouraged by the housing market.
And the question then becomes,
can you still somehow have this, without this?
Can you find some kind of financial stability,
even if you continue to rent where you live?
Well, let’s start with the obvious:
This is not even always going up.
Just for one example, this is the 2008 housing crisis,
which was a disaster for home values.
Now, they’ve obviously gone way back up,
but we can look at other kinds of investment
over that time period, too.
Here's a common stock market index.
It also went down, and then up.
Now, that is an extremely imprecise comparison
between two very different ways to invest.
But you could also chart
several kinds of investments this way,
and they would all go up sometimes, down sometimes,
hopefully up in the long term, but in the short term,
you do not ever know what is coming next.
A home is a pretty unique kind of purchase.
It's a necessity, that you buy at great cost.
But if you look at it as a long-term investment,
it's not actually that special.
If you want the stable investment,
you go out and invest in a nice,
you know, government bond mutual fund.
You don't have to worry about that.
It is most likely, you know, going to go up.
And if it doesn't go up this month, over time, it will.
One thing charts like this show is that the conditions
for buying a home change.
Recently, they've been kind of bad.
They might not always be.
But: if you're looking for long-term investments to grow your wealth,
even if you rent your home,
a house is not your only option.