The Disconnect Between Home Prices and Incomes

The current housing affordability crisis is primarily driven by the significant gap between home prices and average incomes, rather than just high mortgage rates. While past generations faced higher interest rates, home prices were substantially lower, resulting in more manageable mortgage payments compared to today's market. For instance, a mortgage for a home costing $100,000 in the 1980s at an 18% interest rate would yield a monthly payment of around $1,730, whereas a mortgage for a $1.1 million home at a 4.7% interest rate today would require a monthly payment of approximately $6,070—almost $4,900 more. This stark contrast illustrates that even with higher interest rates in the past, homeowners were less burdened by high monthly payments due to lower principal amounts that were tied to significantly more attainable prices.