The Cost of Home Ownership
If you're reading this in 2024, you're almost certainly aware of what has happened to house prices in the U.S. since the beginning of the COVID-19 pandemic. In case you aren't, here's a quick look at the Case-Shiller U.S. National Home Price Index for the period covering September 2019 to September 2024:
Starting at a base value of 100 in September 2019, the index showed little growth through early 2020, followed by a steep acceleration that began during the pandemic. House prices surged like a runaway train from mid-2020 through mid-2022, reaching a local peak of about 145 in June 2022. In other words, in under two years, houses became roughly 45% more expensive. Prices then declined for the first time during this period, falling through early 2023, before beginning another upward climb. The index has since stabilized around the 153 mark as of late 2024, meaning that if you're in the market for a house right now, you're likely to pay over 50% more than you would have paid just five years ago.
Property Values and Costs as a Percentage of Household Income
One question on many people's minds is, how long can this price surge continue? I decided to take a look at The American Community Survey (ACS) to see if it offers any clues. You can read more about this source at the end of the article. The ACS captures some very interesting information about households that may shine some light on housing affordability and where the ceiling for prices could be. The dataset is so large that I've chosen to focus on just two states: Florida and Texas. The reason I've chosen these two states is that they are large (which helps with the accuracy of the estimates) and they had very different experiences during the last housing bust in 2007-2008 (Florida was hit particularly hard, while Texas was relatively unaffected).
First, let's look at what home owners in these states said their properties were worth, from 2005 to 2023, per the ACS.
There are two things to point out: 1) there is no data for 2020 due to the pandemic; and 2) the reason the lines are flat over the 2005-2007 period is that the Census didn't capture specific values for those years; instead, they recorded ranges (e.g., $200,000-$250,000). For this chart, I've chosen to use the midpoint of the relevant range. What's evident is that houses in Florida were significantly over-valued prior to the crash, as can be seen by the notable drop in reported values between 2008 and 2011, while house values in Texas remained very stable. In recent years, homeowners' reports of what their properties are worth have been consistent with the Case-Shiller Index, as expected.
Another interesting data element available in the ACS is the monthly owner costs as a percentage of household income, which includes mortgage payments, property taxes, and homeowner's insurance. Let's look at what Florida homeowners have reported first:
The distribution of housing cost burden in Florida reveals some very interesting information. First, there is a significant difference between ownership cost burdens across the distribution. The median value has averaged around 20%, while the households that are stretching their incomes the most (at the 90th percentile) spent anywhere from half to two-thirds of their income on housing. The data show a clear upward trend prior to the bust, followed by a downward trend until roughly 2020 (not shown on the graph), when the series begin trending upwards once again. The data for the 2021-2023 period indicate that, particularly among the most burdened homeowners, there is a noteworthy upward trend underway. That being said, 2023 levels were still well below their peaks in 2008.
The data from Texas show a much different story:
The percentage of income spent on housing costs in Texas has been remarkably stable over this time period, which one would expect given that the state did not suffer a crash like Florida.
The Bottom Line
The data show that in certain states, homeowners are increasingly stretching their finances once again, but there is still a long way to go before reaching the levels that we saw prior to the last bust. If these trends continue, it would certainly provide evidence in favor of the idea that another correction may be coming. However, prices seem to have leveled off and homeowners aren't quite as stretched as they were prior to the last crisis, so those prospective buyers who are sidelined anticipating a big price dip may be waiting for quite some time.
About the Data
The ACS is an ongoing survey conducted by the U.S. Census Bureau that gathers detailed demographic, social, economic, and housing information from a sample of U.S. households each year. Unlike the decennial census, which provides a broad snapshot of the population every 10 years, the ACS offers more timely data by collecting information annually.