Why You Shouldn’t Buy A House Today

Published on: 04/25/2023

In this edition of Chart Talk, Tony Ogorek and Jeff Viksjo discuss why this is a very bad time to buy a house.

 

TRANSCRIPT

TONY:

Welcome to another edition of Chart Talk.  I’m Tony Ogorek.  I’m here with Jeff Viksjo. And Jeff, today we’re going to talk about why this is a very bad time to buy a house based on a number of metrics, but we’ve got a chart that, sort of, says it all.  So, let’s take a look at our first chart.  And what this takes a look at is income level of people and the cost of housing.  And really, really an interesting story to be able to tell here.  So, why don’t you take it from here.

JEFF:

Yea, so housing prices are the purple line and below that is earnings.  So, average hourly earnings for employees.  What the point is, is that they should track each other.  That the affordability of houses should, generally, track how much people are earning.  That would be logical, but unfortunately Tony, what we’re seeing is that housing prices have taken off, well above what anyone is earning, so they have become very unaffordable.

TONY:

Yea Jeff, we look at this over the past 25-years, and when you look at the those grey bars, the first one is the NASDAQ bubble, and you see there’s a little bit of space.  But then, you know, it tends to take off after that.  Then we get the Global Financial Crisis, where real estate just got shellacked, and you see that, actually, the affordability, that was the time to buy houses, because the prices of houses was actually below the income line.  But look what’s happened as of recently, and particularly since that COVID recession, is that the gap has opened up massively. Which means that the price of homes today, is really being outpaced by the level of income that you’ve got.  The affordability is just terrible.

JEFF:

Yea and Tony, this doesn’t even take into account the level interest rates.  So, this is just housing prices.  You couple that with higher mortgage rates and houses have, really, never been so unaffordable.

TONY:

Yea, it’s just, it’s really a bad environment in terms of buying a house.  For many people Jeff, you know, their disposable income, more than 50% of it is going to housing.  Which really just doesn’t seem to be sustainable.

Now, we look at our next chart here, and this looks at FICO scores.  Which is, you know, how banks look at whether you are a good credit risk or not.  And over here, we see some interesting stuff too, particularly since the COVID money came and entered into people’s bank accounts.  What do we see here?

JEFF:

Yea so, the question is, will something break?  Well housing prices will have to come down because nobody can afford them anymore.  And this just gets to how consumers are faring.  You can see, this is their FICO scores.  And the median there at the top, you can see it did bump up during COVID.  And why is that?  Because we got all the, essentially, free money and were able to pay off debts, and that helps your FICO score.  But it’s coming back down. So, scores are getting lower, which again means consumers are less able to afford a home in the first place.

TONY:

Right so, as with any asset, there’s a time to buy and there’s time to sell.  And at this point, you know, housing looks extremely expensive on many fronts.  And our advice to people would be, if you’re looking for a house, maybe you rent for a year, or take a year off.  And the odds are that, you’re going to have greater affordability going forward.

So, thank you Jeff.  And thank you for listening to this latest edition of Chart Talk.

 


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