The pundits remind us regularly that mortgage rates are historically low, and this colorful graph shows it clearly. But home buyers are frustrated because any benefit has been offset by today’s higher prices.
| Year | Loan Amount | |||
| 1984 | ||||
| 1990 | ||||
| 2002 | ||||
| 2019 |
Lower rates today enable buyers to afford a house that is 2.3x more expensive than in 1984 and still have the same monthly payment. But home values have appreciated more – the December San Diego Case-Shiller Index is 4.6x higher.
It’s worse in the higher-end areas too.
Back in the day, we were selling the PB crackerboxes for $100,000 – $150,000.
Now look at the prices:
When interest rates finally go up, so will inflation (actually vice versa). And suddenly today’s prices will look cheap. It’s a vicious cycle.
Crazy to look at the medium CA income in 1984 ($27,000) and now ($69,700) relative to the prices listed, 16×1, 15×1 for the average Joe. Affordability hasn’t improved. Do buyers now expect that level of price appreciation over the next 30 years?
Inflation is 2.4x since 1984, so inflation adjusted, the mortgage payments were 20% higher in 1984! However, the down payment is almost double, even adjusted for inflation, which may be the real problem. I wonder what monthly rent payments have done since 1984.
Brian, your salary numbers are inflation adjusted.
But the low rates have enabled cheap payments, not cheap prices, and rates cannot have a similar effect going forward, so that argues against real dollar appreciation. Supply and demand looks to be getting worse, so some real appreciation is still possible, just not at the past levels. Note – I’ve been wrong before.
Do buyers now expect that level of price appreciation over the next 30 years?
No but some appreciation please.
I wonder what monthly rent payments have done since 1984.
Gotta be 3x or 4x too.