There are many headlines about how housing affordability is declining. The headlines are correct: its less affordable to purchase a home today than it was a year ago. However, its important to give this trend context. Is it less expensive to buy a house today than it was in 2005? What about 1995? What happens if we go all the way back to 1985? Or even 1975?
Obviously, the price of a home has appreciated dramatically over the last 45 years. So have the prices of milk, bread, and just about every other consumable. Prices rise over time we know it as inflation.
However, when we look at housing, price is just one component that makes up the monthly cost of the home. Another key factor is the mortgage rate at the time of purchase.
Lets look back at the cost of a home over the last five decades and adjust it for inflation by converting that cost to 2021 dollars. Heres the methodology for each data point of the table below:
As the chart shows, when adjusted for inflation, there were only two times in the last 45 years that it was less expensive to own a home than it is today.
At every other point, even in 1975, it was more expensive to buy a home than it is today.
If you want to buy a home, dont let the headlines about affordability discourage you. You cant get the deal your friend got last year, but you will get a better deal than your parents did 20 years ago and your grandparents did 40 years ago.