Many headlines today are about how housing affordability is declining in the hot real estate market across the country. The headlines are correct since houses are less affordable to purchase today than it was a year ago. However, like many headlines it’s important to context. Is it less expensive to buy a house today than it was in 2000? What about 1995? How does today compare to 1985?

Everyone knows the price of a home has appreciated dramatically over the last 45 year, especially here in Northern VA. Prices rise over time – we know it as inflation.

However, when we look at a home purchase, 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.

Let’s 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. Here’s the methodology for each data point of the table below:

• Mortgage Amount: Take the median sales price at the end of the second quarter of each year as reported by the Fed and let’s assume that the buyer made a 10% down payment.

• Mortgage Rate: Look at the monthly 30-year fixed rate for June of that year as reported by Freddie Mac.

• P&I: Use a mortgage calculator to determine the monthly principal and interest on the loan.

• In 2021 Dollars: Use an inflation calculator to determine what each payment would be when adjusted for inflation. Green means the homes were less expensive than today. Red means they were more expensive.

As you can see, 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.

1. 2020: There was a strong appreciation over the last year and mortgage rates have remained relatively flat. Therefore, affordability weakened.

2. 2010: Home values plummeted after the housing crash 15 years ago. One-third of all sales were distressed properties (foreclosures or short sales). They sold at major discounts and negatively impacted the value of surrounding homes – of course homes were more affordable then.

At every other point, even in 1975, it was more expensive to buy a home than it is today.

Bottom Line

If you you are considering a home purchase, don’t let the headlines about affordability discourage you. You can’t 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.