Are Mortgages Really Unaffordable Now or Do We All Just Need to Work Harder?

There’s a generational divide when it comes to attitudes to home ownership, in the U.S. and now, increasingly, across the globe. Many millennials are complaining that they’ll never be able to afford a home, at least not in the big cities that their jobs tie them to. Boomers insist they just need to work harder (and stop ordering that avocado toast).

The youngsters hit back, often with math. If they’re spending 20 bucks a week on avocado toast, and houses in their city cost $800,000, giving up the toast means they’ll be proud house owners by the time they’re 798 years old.

The older folks point out that starter homes don’t cost $800,000 and you only need a deposit to get started. The millennials argue there are no starter homes. They’re all owned by landlords (or Real Estate Investment Trusts) that charge such extortionate rent that saving for that deposit becomes more challenging than boomers can even imagine.

The arguments go round and round, but is it really possible to buy a house as a young employee these days? Have mortgages become unaffordable on current wages? And does it depend on where you live?

The answer to the last question is a definite yes. We’ve talked before, here at Wealthtender, about how there are places in the U.S. where property is still affordable. It’s just that none of these places are where the well-paid jobs are, and while remote work is helping some people move to cheaper states and towns, it’s not the case for everyone. And the past few years have seen things getting even more out of hand, according to young home buyers, with houses even in rural towns often costing a million dollars or more.

Do Houses Really Cost More Than They Used To?

Many of the older generation insist they don’t, saying that sure, the median cost of a home was only $11,900 in 1960, but that was a lot of money back then. It was, of course, but it wasn’t the equivalent of $800,000 or anything close to it.

Wages have increased over the decades, as have overall living standards and household incomes in general, but all these things are not keeping pace with each other. I’ve shared these figures before, but they’re always worth considering, when looking at modern day homeownership.

The median price of a home in the U.S. in 1950 was $7,354. Average family income that year was $3,300. In 2022 the median price of a home in let’s say, California, for example, was $505,000. The median annual income of a household in the state in 2022 was $80,440.

In other words, in 1950 you could buy a house with a little more than twice your annual income. Now it’s more like six times your income, and then some.

Yes, if you’re lucky enough to have a partner, you can get a mortgage based on two incomes, but if you also have kids? Young parents of pre-school kids often complain that childcare is their second biggest monthly expense after housing costs, and can even cost more than a mortgage.

Can You Afford a Mortgage?

Young people are stretching themselves thinner and thinner to do so, often trying to find deals that allow them to borrow four or more times their income. Perhaps ironically, this still often works out at a lower monthly payment than rent, so yes, if you can afford rent you can usually afford a mortgage, but then there are the other expenses involved in owning a house to consider.

To work out if you can afford home ownership, you might want to:

• Play with a mortgage calculator to see if you can get a monthly repayment you can afford, depending on the deposit you have, and how long you’re willing to be paying that mortgage for.
• Factor in all the other expenses involved in home ownership, from insurance to property taxes, to maintenance and repair costs – overestimate them to be safe.
• Check out any deals you might be eligible for to help with costs and down payments (if you’re military, a first-time buyer, or buying in a rural area, for example, there are programs that might help).
• Look at all the options within what you consider a reasonable commuting distance to wherever you need to be for your job. You’ll often find a lot of differences in house prices within an hour’s (or even half-hour’s) drive.

Lastly, don’t feel guilty you’re not working harder, no matter what your grandpa tells you. He probably worked a 9 to 5 with a reasonable commute and came home to grandma’s home cooking.

If you and your partner are working normal 21^st century jobs, with big city commutes and bosses who email you any hour of the day, night or weekend, you’re probably working hard enough.

Karen Banes is a freelance writer specializing in entrepreneurship, parenting and lifestyle. She writes articles, website content, ebooks and the occasional award winning short story. Her work has appeared in a range of publications both online and off, including The Washington Post, Life Info Magazine, Transitions Abroad, Brave New Traveler, Natural Parenting Group, and Copia Magazine. Learn More About Karen