Greater Phoenix Blue Chip

LACK OF AFFORDABILITY IS TAKING ITS TOLL ON THE AMERICAN DREAM

First Quarter, 2025

Elliott Pollack

The tragedy of the current housing market can be summed up in a few numbers.  The first is the median age of a home buyer today versus other times in history.  In 1981, according to data from the National Association of Realtors, the median age of a home buyer was 31 years old.  In 2010, it had increased to 37 years old.  In 2024, it hit a whooping 56 years old.  In other words, it is evident that younger generations have, for obvious reasons, postponed home buying and, therefore, are not enjoying the event that for most people gets them on the economic ladder and is a significant part of the American Dream: “Home Ownership”.

The figures are similar when looking at the age of first-time homebuyers.  In 2000, the median age of a first-time homebuyer was 32.  In 2024, it was 38 years old.  That was a significant increase from previous years.  Moreover, only 24% of homebuyers in 2024 were first-time buyers.  This was the lowest share since 1981, a year when mortgage rates exceeded 13%.

The rise in the age of both first-time and all homebuyers can be attributed to many factors that impact affordability.  These include high home prices, elevated mortgage rates, limited inventory of homes, and a continued increase in the cost and amount of regulation that is preventing the construction of more affordable smaller homes in many areas of the U.S.  This is an important factor that is often overlooked.  Indeed, the average size of a home increased from 1,595 square feet in 1980 to about 2,100 square feet in 2020.  Reflecting the realities of the marketplace, the median size of a home now has declined somewhat to about 1,790 square feet in 2024.  The overall increase in home size was possible because of mortgage rates that fell constantly from 1980 until 2022.  During that period, the amount of time per square foot it took to pay for a home dropped by 62%.  Since 2020, that cost has increased considerably.

Generational affordability became evident as an obvious problem in regional markets (mainly California and northeastern states) well before interest rates began to rise nationally.  Markets responded with combination of smaller homes on smaller lots and more renters relative to buyers.  This is now a national problem and will continue to be so until:

a) mortgage rates decline—probably to 5% or less;

b) home prices decline-probably by more than 10%; or

c) local governments recognize that it is important to allow smaller homes on smaller lots so younger Americans can get in the housing game.

It is virtually the only way that most people can buy a significant asset that is highly leveraged, has non-recourse 30-year debt and is likely to go up in value over time.  These factors allow the buyer to pursue the American Dream by building equity.

Until economic events or better local housing laws allow this dynamic to reoccur, a whole generation of young Americans will be left behind and could easily permanently change the future for many younger Americans for the worse.

GREATER PHOENIX BLUE CHIP: RESIDENTIAL