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Home affordability has been the talk of the town for a while and it inspired me to get a feel for the forest in a domain largely cluttered with political opinion instead of scientific method. My objective was to distill the relevant data as much as possible, but no more than that.
The first thing that came to mind was inflation-adjusted home prices. Robert Shiller’s CPI adjusted methods are my favorite and offer the largest view of the forest. The data I downloaded from multpl.com is monthly back to 1987, then quarterly to 1952, then annually to 1890. I did the math to extend it to Sept 2025. I added dates where significant changes in the trace occurred. There are no economic events implied by these date selections.
Shiller CPI Adjusted Home Price Index
The values on the vertical axis are only the output of the calculation and change depending on the reference CPI date chosen. The utility of this plot lies in visually selecting a date and referencing the inflation adjusted median US home prices relative to that date. Shiller’s plot adds building costs, population growth and 10-year interest rates in an attempt to provide context to home price movement. Interestingly, the low correlation proves there’s much more to the pricing picture.
Shiller Home Price Index with Contributors
It’s beyond my ability and interest to explain housing prices—my interest is housing affordability. What stands out to me is the consistency in home pricing vs. purchasing power from WWII until 1997. The periods before and after have been Mr. Toad’s wild ride. We need more information to form a reasoned opinion of the goal—to see what has happened to home affordability.
The actual ability to buy a home not only depends on pricing—but income, mortgage interest rates, the percentage of that income available to service mortgage payments, and non-mortgage home ownership expenses.
That’s for Part II of this post.
(Graph is high-resolution and should be viewed full screen. You can download it.)
A perspective from outside the US.
A lot of news from the US that I get talks about a housing affordability crisis. Yes, recent trends in the US have seen houses become less affordable. And I appreciate that shift in the market hurts.
But housing in the US remains much affordable than in other developed nations.
From https://worldpopulationreview.com/country-rankings/affordable-housing-by-country, some affordability index numbers for various countries:
USA 3.3
Australia 8.1
New Zealand 7.3
United Kingdom 8.8
Japan 12.2
Canada 10.2
So in many other countries, homes are 2-3 times more expensive (relative to median income).
To make sense of this might require the indebtedness numbers for each country. The U.S. “Mortgage as a Percent of Income” is stated to be 30.1%, which is low on the table. Yet, it is also stated that “Countries where housing is the hardest to afford include …..the United States”. Empasis is mine.
Young U. S. buyers are supposedly strapped with other debt. If I spend 75% of my income on expenses including food, utilities, rent, loans and credit cards, that might make a home purchase impossible. Also, real estate taxes are a factor.
I’ve decided that what this is, is a lifestyle decision and a home may not be a necessity. For example, air travel in the U.S. set a record in 2025, although there are indicators that business travel reduced. We all enjoy experiences, but I’ve read repeatedly that younger people value experiences very highly. That includes entertainment, dining and travel. These are things that those seeking to buy a home may forgo or reduce in order to achieve that goal.
Interesting. I wonder about the methodology. And about why it’s really telling us, assuming I’m reading it correctly. The summary says, “Countries where housing is the hardest to afford include Australia, Canada, the United States, China, New Zealand, and the United Kingdom.” Yet, depending on the measure used, the U.S. is the third or fourth most affordable country in the study, so it’s hard to see why they’d call out the U.S. as hard to afford. Also the mortgage as a % of income is shown as above 100% for many countries. I suppose I’m not reading it correctly because that makes no sense to me.
I think this is very interesting. I do agree that perhaps a few metro areas should be picked, otherwise it isn’t that meaningful. Prices for someone even in a town like Bremerton, WA, are high, then try Portland or Seattle and it is far more. You need two decent salaries to even be in the game of looking for a house. What about an engineer who is living by himself, who would love to be able to fix it up themselves, he can’t afford any stick built house that isn’t in a crime ridden neighborhood.
I’m interested in the rise since 1950. Women slowly entered the workforce and they have also slowly made gains. So I don’t think it is accurate to use household income to look at affordability. I think it would be more accurate to look at personal income. Graph how much the average income could afford vs the cost of a home at a few different locations, that would paint an interesting picture. It would show that it isn’t a matter of being clever or saving money, it would show how times have changed and why so many young people feel that home ownership is beyond their means.
Looking forward to part II