U.S. housing affordability surpasses 2008 crisis levels – Creative Planning’s Charlie Bilello

[Real estate growth chart. 3d illustration]
Mohammed Haneefa Nizamudeen

The U.S. housing market has reached an unprecedented affordability crisis, with a 57% gap between actual median household income and the income required to purchase a median-priced home, according to data from Creative Planning.

The median American household would now need to spend a record 47% of their income to afford the median-priced home for sale, making the current market even less affordable than during the 2000s housing bubble, said Charlie Bilello, chief market strategist at Creative Planning, in a recent blog.

The affordability challenges come after a decade of extraordinary price growth. U.S. home prices have increased over 53% in just the past five years, more than double the increase in average wages during the same period. Miami, FL tops the list, up 80.5% in the past five years, followed by Tampa, up 69.8%, and Charlotte, NC up 68.4%, as of December 2024, according to Creative Planning housing market data.

This extreme disconnect from historical trends is particularly concerning when viewed in context, Bilello said, and pointed out that before 2000, U.S. home prices had never outpaced inflation by more than 30% on a cumulative basis since records began in 1891. However, now prices have recently surged to a new record of 118% above inflation, creating an unsustainable situation.

[US Real Home Price Appreciation]
US Real Home Price Appreciation (Creative Planning, Charlie Bilello)

The current crisis follows previous housing market corrections, most notably during the 2007-2011 period, when U.S. home prices declined by 26% nominally and 35% on an inflation-adjusted basis. Bilallo suggested similar correction pressures may be building, noting that “there is no rational justification for prices to continue to outpace inflation by such a wide margin.”

The data points to a likely future where home price appreciation returns to more modest levels aligned with inflation. Financial experts indicate that homeowners should expect “a much more modest pace of growth at roughly the local rate of inflation,” with the understanding that prices could potentially grow even slower if markets correct toward historical means.

This reversion would help close the enormous affordability gap, though exactly how and when remains uncertain, he concluded.

Other notable points:

* As of 2022, 35-40-year-olds have 65% of their net worth in home equity. The number drops to 41% for age groups under 35, and rises to 69% for age groups of 75 and over.
* Since 1891, U.S. home prices have increased 3.4% per year before inflation (“nominal”) and 0.5% after inflation (“real”).
* In 2020, the nominal U.S. home price increased 10%, then 19% in 2021, and 6% in 2022. However, the real prices – adjusted for inflation – were 9%, 12%, and -1%.
* During the financial crisis of 2008 and its housing market crash, real home prices dropped -12%, then -7% in 2009, and -6% in 2010.
* The U.S. Fixed Housing Affordability Index is at 100.70, lower affordability than the 2000s housing bubble.
* Currently, there is a 57% affordability gap between actual median household income and qualified income to buy a house.

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