I see a lot on Reddit about cost of living and housing cost.
There are a lot of factors that play into this that I never see discussed.
However, the 5 common misconceptions and misunderstandings I see that are never discussed and are major factors-
1. Many of the sale previous sale prices being used as examples do not take into account that most of these areas were not desirable at the time and the areas have changed over 60 years.
“My parents only paid $50,000 for their house now it’s $600,000” “yeah the houses I can afford are in the middle of nowhere or the hood I don’t want to live there”
Housing has never been affordable and a $50,000 house was not in a desirable area.
Some were far out, some were dangerous areas, some had no infrastructure around them, many were subdivisions with a commute to the city but cities have expanded making them close and desirable now.
- Owning a home with a mortgage was cheaper than at any point in history 2015-2023
Homes actually have NOT gone up as much as they should have when tracked against inflation. This only applies for cash purchases. Anything FINANCED with a mortgage cost more.
The total sale price is higher but the monthly payments very similar and even CHEAPER up until 2022. Now they’ve gone up but still MUCH LOWER than where inflation would put them. If it kept up with inflation and the interest rate of the time it would be $3,866 a month but it’s $2,411
Average sale price and interest rates by year
——————-1981 2021. 2026.
Interest rate. 19%. 2%. 6%.
Sale price: $83,000. $346,900. $502,700
Monthly: $1,055. $1,025. $2,411
* numbers do not include taxes and insurance.
There are also several grants, programs and housing incentives today that did not exist at the time. Bringing the cost of entry below $10,000 and sometimes almost $0.
- Land, Labor & material cost to build
I never see any of the discussions factor in the cost of material, the cost of labor needed to get a house up today and the shortage of land that can be developed for homes.
This is part of the reason there is a housing shortage that has been growing for the last 12ish years.
These are huge factors, because it’s more expensive to build a house today than to buy an existing one. There is a shortage of skilled labor making the cost significantly higher than previously seen and building material is at an all time high.
That all factors into existing prices because of scarcity and high demand.
- Taxes. Property taxes have gone up average of 62% since the 70s and even 200% in major cities that have developed since.
This all goes into the cost the current owner has put into that property and will be passed on in the sale price.
- People are not cohabiting and it’s making a greater gap.
Record numbers of men and women living separately. You need double the amount of housing for the same amount of people.
But we were already short on houses and this makes the gap bigger.
There are many single men and women who have purchased 3 bedroom homes because the mortgage from years 2015-2023 was cheaper than renting and they live along taking up a home that traditionally houses a family of about 3 or 4.
The average 3 bedroom home price in 2021 was $325,000. The monthly mortgage payment was $961
The average rent for a 1 bedroom apartment was $1,594.
Instead of renting, People were buying 3 bedroom homes and paying half what they would for rent.
I first hand sold multiple 3 bedroom homes to mostly single women.
This is another part of the deficit.
After reading those points, if there is anything else I can break down and explain. I am happy to.