Thursday, July 21, 2022 / by Brian Armstrong
Buying and owning a home has been a quintessential part of the American Dream for decades! The American Dream, which first came about during the Great Recession, idolized that anyone in the U.S with a hard work ethic should be able to achieve success through employment, homeownership, family, etc. However, the U.S. economy continues to evolve, paving a new path for the 21st Century American Dream. Take a journey with us as we travel back 50 years to see what buying a home looked like compared to today!
Buying a Home in the 1970s
In the 1970s, Vermont was a rapidly growing state! Ben & Jerry's started its first ice cream shop, the counterculture was a growing phenomenon, and Vermont was a great place to own a home! So much so, that 69.1% of housing units in the '70s were Owner-Occupied dwellings! Sounds like a high percentage, right? 50 years ago, the median value of an owner-occupied single-family home was only $16,500! So, what about wages? During this time, the annual household income was about $9,000. Therefore, to become a homeowner in Vermont in the 1970s, you could buy a home outright with 1.8x your annual income! 1
Buying a Home in the 2020s
Fast forward to the present, and let's see what Vermont's real estate market looks like today! Vermont is still growing steadily, with robust hubs in the Northwestern part of the state. Owner-occupied housing has grown over the fifty-year gap and currently amounts to 71.1% of housing units! So, with an uptick in home ownership, we would assume these homes have maintained their affordability, right? Currently, the median value of an owner-occupied single-family home is up to $380,000, or a 2,203% increase from the '70s! Things get more interesting as we dive into how wages grew as home values exploded over several decades. Today, the median income in Vermont is $58,728, therefore, for many residents, it can cost nearly 6.5 years of earnings to purchase a home outright! 2
The Major Dollar Discrepancy
In the examples above, we did not account for inflation and what the prices would look like in 2020 dollars, however, instead we tied it to wages as our adjustor. As we look at the numbers, the median home price relative to wages for Vermonters is 3 times as high as it was in the '70s. This is due to the income and wealth divide which continues to grow larger. Some of this divide has been driven in the last few years and can be attributed to COVID-19. During the pandemic, the Federal Reserve kept interest rates low to encourage spending on homes, cars, etc., however, housing continued to rise in value, and average wages remained stagnant. In addition, inflation also has taken a major toll on our economy and the affordability of homes, and continues to rise! With recent inflation hitting over 9% year over year we have several factors all applying pressure on low and middle incomes making home ownership more challenging!
Overcoming the Challenges
While homeownership has become more challenging over the last 50 years, there are still opportunities to get ahead! Today, mortgage interest rates have dropped substantially from the '70s, making interest payments more affordable for homeowners. Additionally, during the height of the pandemic, national mortgage interest rates fell to one of the lowest averages we have ever seen, opening more opportunities for potential homeowners to buy property. So, while the cost of a home may be higher than it was 50 years ago, access to financing for a home purchase has evolved to help keep the American Dream alive! 3
If you have more questions about making a purchase in today's market, please reach out to us at 802-735-2167 or send an email to email@example.com