Why the US Housing Market Will Definitely Collapse

The most important economic indicator on the future of the housing market is the ratio between income and the monthly payments. According to that metric the American housing market hasn't been this bad since the peak of stagflation in 1982. Even worse: the Federal Reserve Board won't be able to fix it by changing the benchmark rate. The only question is how steep the decline will actually be.

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David Sirota and Alex Gibney's Meltdown Podcast:
https://www.audible.com/pd/Meltdown-Podcast/B09J733SQR

The Numbers:

All assume a 20% down payment and include taxes and escrow in the monthly payment (I slightly misspoke in the video saying it was only mortgage payment).

1982 Median housing cost: $65,000 (195,000 today)
Median income: $23,430 ($75,000 today)
Mortgage rate: 18%
Monthly payment: $1089 ($3,267 today)
Monthly to income ratio: 52%

1990 Median housing cost: $120,000 (268,800 today)
Median income: 57,000 - ($127,000 today)
Mortgage rate: 10%
Monthly payment: $1253 ($2,806 today)
Payment to income ratio: 26%

2000 Median housing cost: $165,000 (280,000 today)
Median income: $63,000 ($107,100 today)
Mortgage rate: 8.25%
Monthly payment: $1,212 ($2,060 today)
Payment to income ratio: 23%

2007 Median house cost: $233000 (328,000 today)
Median income: $62,000 (87,000 today)
Mortgage rate 6.14%
Monthly Payment: $1477 ($2,082 today)
Payment to income ratio: 20%

2022 Median house cost $428,000
Median income $75,000
Mortgage rate 6%
Mortgage payment $2,624
Payment to income ratio: 41%

Take Aways
* Real median incomes are down
* The relationship between payments and income is close to the worst it has ever been historically
* The mean monthly payment today is $600 more than it was in 2007 (inflation adjusted and incomes were 10k higher back then.
* We are close to the scenario in 1982 when we had 10% unemployment, and the worst economy since the great depression.
If mortgage rates go to 9% the housing market will be the same as in 1982.

#realestate #economics #investing