Ask a millennial or Gen Z'er if buying a home is too expensive, they will almost certainly say yes. Ask the same question to baby boomers or Gen X and some might have a different response, citing interest rates are still quite low today compared to when they bought their first home.
Who is right? Let's look at the details as it is a little more complicated than one might think (Full Disclosure: I am a millennial writing this article).
The chart below helps the case for younger generations. If you adjust home prices for inflation, we are currently right at the most expensive home prices we've seen over the last 50 years.
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Before you think this is a repeat the 2008 housing bubble and subsequent crash, it probably isn't. Back then, home values were inflated by loose lending standards, NINJA loans (No Income, No Job, No Assets), leverage on inflated equity, and once adjustable mortgage rates kicked in the market was flooded with an incredible amount of forced liquidations, causing prices to crash.
Today over 73% of mortgage holders are locked in at a rate under 5%, and 55% are under 4%. It is unlikely we get into a mass liquidation event unless unemployment rises dramatically.
So if we are simply looking at home prices adjusted for inflation, it appears the younger population is correct that housing is very expensive and nearly twice as expensive as it was in say 1980.
In 1980 the median size of a newly built single-family home was approximately 1,595 square feet. The median size of a newly constructed home in Q4 of 2024 was 2,205 square feet. That means the median size of a new home today is 38% larger than it was in 1980. These larger homes have come despite the average family size shrinking slightly.
So we know that homes are nearly twice as expensive today than they were in 1980 after we adjust for inflation, but what about when we adjust for square footage as well?
Andrew Latham of www.supermoney.com had a great post on this subject and his graph below helps tell the story.
The increased costs do not appear as dramatic as the first chart I shared.
In 1980 the median price per square foot of a new home was $162 and in 2024 it was $195.9. That is a 21% real increase. Homes are bigger today and that adds expenses.
This weakens the argument a bit from younger generations, but it still shows that housing is more expensive as costs have still gone up after accounting for the larger home sizes.
Looking at the history of 30 year mortgage rates below, it sure does seem like rates are still reasonable or even low. The baby boomer generation commonly had double digit mortgage rates on their first home.
Let's take a closer look at everything though, and compare the medians from 1980 to 2024.
You can see one problem right away in my table, the median home price jumped over 6.5X from 1980 - 2024 while the median household income only jumped 4.5X. Despite that, the lower mortgage rates helped quite a bit in terms of affordability. The median household is spending about 32% of their income on their mortgage today versus nearly 39% in 1980.
We know from looking at the historical mortgage chart that most people who took those double digit mortgage rates would have been able to refinance at some point along the way. I did not factor that in, but I do find it very unlikely that most borrowers in 1980 stayed with their interest rate for the entire 30 years.
I was curious to know how much that 13% interest rate would have to drop in order for the 1980 median homebuyer to spend the same amount of their annual income as the 2024 median homebuyer. Assuming income stayed the same, the mortgage rate would have had to drop to about 10.5%, which happened in 1986.
Life is different in many regards today than it was in 1980 (I hear). Here in Southwestern Illinois property taxes seem to be around 2.10% of the estimated home value every year. I suspect property taxes as a percentage of home value were lower in 1980 than they are today, but let's assume they were the same.
Using the $64,750 median home value, property taxes would have been ~$1,456 annually or another 8.23% of the household's median income. Using the same math for 2024, property taxes would be ~$9,017 today or 11.19% of the household's median income.
So once you combine the mortgage payment with property taxes, the 1980 median household is spending about 47% of their income on housing (YIKES) while the 2024 household is spending about 43.51% (YIKES).
That would seem to suggest that housing was actually more expensive for the median family in 1980 than it was in 2024.
When comparing housing costs across generations, it’s also important to remember that the rest of the household budget looks very different today. Many recurring expenses that eat into modern paychecks simply didn’t exist in 1980, while some costs from back then have all but disappeared.
Today it is not uncommon for the average American household to pay for cell phone plans, high speed internet, student loans, streaming services, home security systems, HOA dues, and of course pet insurance. None of these were budget items in 1980, not to mention the insanely high cost of health insurance/healthcare for a family today.
To be fair to both sides, there were expenses for households in 1980 that are unheard of today such as long distance phone charges, photo printing, postage, magazine/newspaper subscriptions, heating oil, encyclopedia sets, and of course answering machines.
Housing affordability isn’t a simple story of “cheap then, expensive now.” Prices have surged faster than incomes, homes are larger, mortgage rates have swung wildly, and property taxes bite harder. At the same time, today’s households juggle a long list of modern expenses that didn’t exist in 1980, while some old costs have faded away. The reality is that both younger and older generations have valid points. Affordability has always been a challenge, just in different ways. What’s clear is that the financial pressures of owning a home have never disappeared; they’ve only shifted with the times.
Meredith Wealth Planning, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Past performance is not indicative of future results. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here. Data for this article was pulled from sources that the author believes to be reliable.
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