1981 vs. 2011: A Historical Housing Perspective
You’ve likely heard a lot about the housing market recently. On the news there have been a lot of stories about low interest rates and high home affordability. When wading through the numbers, however, it can be easy to miss an amazing fact: The average home today is more affordable than the average home 30 years ago. How is this possible when today’s home is more than twice as much? Record-low interest rates.
In 1981, the average home was $82,000, the average 30-year fixed interest rate was 16.63%, and the average mortgage payment (principal and interest) was $1,147. Compare this with 2011’s numbers: average home at $242,300, average 30-year fixed interest rate at 4%, and average mortgage payment at $1,093. See the chart below.
|Average Home Price||$82,500||$242,300|
|30-year Fixed Interest Rate||16.63%||4.00%|
|Mortgage Payment (P & I)||$1,147||$1,093|
When you adjust for inflation, $1,147 in 1981 is the same as $2,838 today. Put simply, you can buy 20 percent more house for a more than 60 percent discount. Couple high affordability with the fact that interest rates are at all-time lows, allowing people to enter the market with less money than ever before and produce cash flow at a higher rate, and you have an incredibly performing asset!
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