Homebuyers in the 1980s Didn’t Have It as Good as We Thought

You’ve seen the memes.

Grandma buys a house for $1.55 and a bag of blueberries in 1987. House is now worth $1.3 million.

But things weren’t exactly that rosy when new homeowners enjoyed Back to the Future on Betamax and got Def Leppard cassettes raveled in the tape deck.

Data shows that homes were equally expensive in 1987 as in 2022 – the year unaffordability reached its recent height – adjusting for median incomes. Homes are a touch more affordable now in 2024 than they were in either year.

This doesn’t minimize the plight of today’s homebuyer. 1987 was a terrible year for affordability. Though the median home price was just $111,500 according to HUD and the Census Bureau, the 30-year fixed mortgage rate was an eye-popping 11.18%, says Freddie Mac. And incomes were a fraction of today's.

Yet, it’s easy to look at the 80s’ non-inflation-adjusted home prices and payments and long for the days of Michael Jackson’s Bad. But imagine meeting with a loan officer who told you, “This run-of-the-mill house is going to cost you over half your income each month.” You might not have to imagine it: you likely experienced it.

Now, 2024 homebuyers are living a history that rhymes. Today’s buyers are faced with either renting for years or using an uncomfortable proportion of their income to own a house.

*Est. payments reflect principal, interest, 1% property tax, 0.35% homeowners insurance, 0.78% PMI rate per MGIC, 5% down based on median home sales prices via St. Louis Fed/ Census/HUD. Mortgage rates from freddiemac.com/pmms. Example purposes only. Rates/payments may not be available. **2023 median income used for 2024; most recent available.

Most Homebuyers Remember 2020 And That’s a Problem

Great, so 1987 homebuyers were in a similar plight. While that brings some comfort (after all, their $100,000 houses are now worth $1 million), it’s not that encouraging to 2024 and 2025 homebuyers.

The problem is that today’s homebuyers remember 2020, not 1987. The typical homebuyer is 35, according to the National Association of Realtors. They were around age 31 in 2020 when mortgage rates hit ridiculous, insane, unsustainable, pandemic-induced all-time lows. Those rates started feeling normal.

In Q2 2020, the typical house payment ate up just 33% of the median income – about $1,900 per month. In 2024, that number is closer to 50% and average payments are well over $3,000.

The housing market seems just plain unfair.

That’s an understandable attitude. It’s hard to see a monthly payment within your grasp just to see it skyrocket 75% in a few years.

Compare Now To the Future, Not To the Past

What’s important to know, though, is that 2020 and 2021 were economic anomalies. And it wasn’t all roses, either. Ultra-low rates caused extreme over-bidding for homes, cash guarantees, and all sorts of shenanigans in the housing market. First-time buyers barely stood a chance. Using an FHA loan was off the table. At least with today’s higher rates, those who can afford a home face much less competition.

The key is to look forward, not back. Sadly, Marty McFly's DeLorean can't actually travel in time. Comparing today’s market conditions to those of 1987 or 2020 is dangerous. Yes, 1987 nominal home prices and payments seem attractive now. And 2020 mortgage rates seem like a dream. But there’s a very good chance that 2034 homebuyers will hassle you about how low home prices were back in 2024.

The key is to start where you can. 1987 and 2020 are gone. 2025 is coming. Will you dwell in the past or lock in today’s opportunity?