The housing market — a 50-year perspective

The 30-year fixed-rate mortgage was developed during the Great Depression, so it’s less than 100 years old. When Freddie Mac began recording data in April 1971, the 30-year mortgage rate was 7.3%. The economic impact of the Vietnam War coupled with high inflation drove the rate up to 12.9% by decade’s end.^Footnote3

Mortgage rates reached their peak in the 80s, skyrocketing to 18.4% in October 1981. By the end of the 80s, that rate had been nearly cut in half, closing out the decade at 9.78%.^Footnote3

Rates stuck to single digits in the 90s thanks to the dot-com bubble, dropping down to 6.91% in 1998 before ending the 90s at 8.06%.^Footnote3 That downward trend continued in the latter half of the 2000s, a consequence of the housing market crash in ’08, with rates hovering around the 5% to 6% range for most of the decade before closing out at 5.14%.^Footnote3 Rates dropped to 3.35% by 2012 and didn’t rise above 5% the entire decade, ending the 2010s at 3.74%.^Footnote4

January 2021 brought us an historic low of 2.65% due to the impact of the pandemic. Inflation’s steady rise quickly brought rates past the 6% mark, eventually climbing to a 20-year high of 7.79% in October 2023.^Footnote5

As of the writing of this article (February 2024), the mortgage rate is 6.47%.^Footnote6

In April 1971, the median home price in the U.S. was $25,800.^Footnote7 Adjusted for inflation, that home would cost $197,358 today.

In April 1981, the median home cost nearly tripled to $68,700, or $236,514 in today’s dollars.^Footnote7

Jump ahead 10 years to April 1991, and the median home cost was $121,000, or $276,117 when adjusted for inflation.^Footnote7

In the new millennium, April 2001, the median cost was $175,200, or $303,798 in today’s dollars.^Footnote7 In April 2011, the median home cost was $224,700, which is $306,465 adjusted for inflation.^Footnote7 This measly rise of less than $3,000, adjusted, over an entire decade was due to the housing crisis of 2008.

Skip ahead to our current decade: In April 2021, the median home cost $375,000, or $430,735 adjusted for inflation (the difference inflation makes from April 2021 to today is a perfect example of the toll of post-pandemic inflation).^Footnote7

In 50 years, the median home cost more than doubled from $197,358 to $430,735 in adjusted dollars. The question is: Did the median U.S. income keep pace with this change?

In 1972, the median U.S. income was $9,697 and the median home price was $29,200. A home cost roughly three years' salary back then.^Footnote8

In 2022, the median U.S. income was $74,580 and the median home price was $479,500. Fifty years later, a home cost roughly 6.5 years' salary.^Footnote8

Without delving into the policies and politics that led to this shift, this diluted buying power for the typical American homebuyer appears to be the true issue with the current housing market. In the span of five decades, wages failing to rise with inflation has led to U.S. workers’ buying power being cut by more than half.

The Fed has pledged to cut rates as much as three times by the end of 2024.^Footnote9 While those cuts aren’t likely to be as drastic as the cuts that led to historic lows in 2021, even a 1.5% drop in mortgage rates translates into hundreds of dollars in savings on a monthly mortgage payment, helping a lot of potential homebuyers who’ve been priced out of the current market have the chance to buy a home.

And while a drop in mortgage rates doesn’t address the wages-not-keeping-up-with-inflation predicament, it does improve the situation for those on the margins of homeownership. A rise in single-family home construction that began last year and appears to be a continuing trend may counter the possible rise in home prices that lower interest rates could trigger.

So, though the housing market in 2024 isn’t exactly ideal, it is looking up — and seems on a course to continue to do so in the near future.