when you buy a home in the US there is a basic promise that home values will go up over time and that is what you're seeing on this chart let's adjust it for inflation okay jerky or but still basically goes up The Story Goes Like This Money by itself loses value over time that's inflation but if you own your home in the US you own an asset that is appreciating in value by bu it probably required you to save a bunch of money and also borrow a lot of money which you need to pay back
over time as opposed to renting your home which basically just requires rent but now you own it it could be collateral if you ever need money like to start a business or to send your kids to college one day you might sell it for more than you bought it but also stability peace of mind so that you may maintain your place in society you get it if we look at the middle 60% of the US population in terms of wealth the middle class the bulk of the wealth held by that group is made up of
the homes they live in it's a big part of why we think of home ownership as the ticket to financial stability in the US to securing and then building your own wealth but the barriers to buying a home in the US are getting higher so how much higher exactly and if you can't buy a home what does that mean for your future [Music] so first let's go back to the median US housing price over the past 50 years up to 2022 now add income onto it yeah median wages have not kept pace with the increase
in the cost of housing this is Michelle Dickerson she studies why it's become so hard for lower income and middle inome people to be come and remain middle class now let's go back about 50 years and look at a couple whose household income is exactly the national us median at that time in 1972 money about $10,000 imagine right they want to buy a house the median us home price at that time was about $29,000 that is about three times their income before the 1980s it was possible for a young person to graduate from high school
find a job that was a fulltime 40-hour a week job with benefits that paid them enough for them to be able to buy a home now let's go 50 years forward and run those numbers for 2022 median income median home price this house is more than six times this household's income so that is what we're looking at when we go back to that chart of income and housing prices again adjusted for inflation and compare this Gap to this Gap now as for the home prices themselves let's zoom in to make that data easier to see
bring it up to date you can see that the prices are starting to go down a little bit in 2023 but part of why they got so high in the first place is a lack of Supply this chart shows What's called the homeowner vacancy rate over about 70 years it's the percent of homes in the US that are actually for sale and it's currently the lowest since we started collecting data and that is partly the result of restrictive zoning laws locally set rules all across the US that regulate things like where homes can and can't
be built how many units a building can have in it and how densely housing can be built it leads to fewer homes getting built which leads to fewer homes to buy now as for the homes that are for sale that's what we're looking at here this chart splits all homes on the market in the US into tiers by price so these are the lower cost homes and these are the higher cost homes and it tracks over time what percentage of the market each tier represents you can see that over the past few years homes that
cost less than $200,000 have made up less and less of what's available and homes above half a million or even a million dollars are representing a greater and greater share of what's for sale so housing in the US is scarce and it's expensive but we're actually missing a really important piece of the story here we'll talk about that after this quick message student loans can really make you sweat only one in three students understand the financial terms of their loans and nearly half of federal student loan borrowers don't know how much they owe or who
they owe it to so how can borrowers go from confused to confident it might sound obvious but research shows a strong connection between financial literacy and successful student debt management so let's build out a financial literacy toolkit first thing to consider is the numbers find out how much you owe and what your interest rate is prioritize paying off the loans with the highest interest rate first second is to learn the terminology this helps you understand what your options are for example auto debit is when you set up automatic monthly payments which may reduce your interest
rate by 0.25% bonus tip call your lender and see if you can have your payments go directly towards your principle which is the amount of money you borrowed so you can pay off your loans faster look into refinancing that's combining loans into one with a new lender potentially also getting a lower interest rate find out if you qualify for student loan forgiveness that that way you can have some or all of your Federal loans lifted and the last thing in the toolkit making the plan follow through on the approach that works for you maybe you
qualify for the save plan or maybe you can make even higher monthly payments to prevent more interest from acre make a plan that fits within your financial goals by understanding your student loans you can take charge of them learn more at secret.com money moves okay let's revisit the two parts of a home purchase first you pay some percentage of the cost of the home UPF front maybe 5% maybe 20% the down payment the rest of the money you will need to borrow this is the mortgage you'll pay that back in monthly payments but the size
of those payments can vary a lot depending on the interest rate of the loan this chart shows the average interest rate of a common type of mortgage over the past 50 years in the long term it's mostly been going down a lower mortgage interest rate means lower monthly payments so while this chart of housing prices told a story of it getting harder to buy a house over time the interest rate chart seems to tell a different story of very high and burdensome interest rates at one point and mostly lower and lower interest rates over time
so now the story is slightly more complicated and if we look at them on the same timeline they seem to kind of go in opposite directions until they don't let's just look at the recent past in 2020 a pandemic was happening and lots of people suddenly wanted to move and home prices started to shoot up in 2022 as the US Government tried to slow down inflation interest rates began to shoot up and now they're both still pretty high not only that because a lot of current homeowners have mortgage interest rates down in this range the
3 4 5% Zone it means that since selling their home might mean having to buy a new one at an interest rate up here fewer people are selling their homes it helps keep this that homeowner vacancy rate low and it keeps home prices High by the way all these barriers to home buying are exacerbated for people of color who are more likely to be denied mortgage loans regardless of income the website Zillow looks at several of the factors we've talked about including home prices income mortgage rates and it calculates the monthly burden on the average
new homeowner according to them that burden is close to the highest on record [Music] there are lots more factors at play here but overall especially if you're a young person in the US it is natural to feel discouraged by the housing market and the question then becomes can you still somehow have this without this can you find some kind of financial stability even if you continue to rent where you live well let's start with the obvious this is not even always going up just for one example this is the 2008 housing crisis which was a
disaster for home values now they've obviously gone way back up but we can look at other kinds of investment over that time period too here's a common stock market index it also went down and then up now that is an extremely imprecise comparison between two very different ways to invest but you could also chart several kinds of investment this way and they would all go up sometimes down sometimes hopefully up in the long term but in the short term you do not ever know what is coming next a home is a pretty unique kind of
purchase it's a necessity that you buy at Great cost but if you look at it as a long-term investment it's not actually that special if you want the stable investment you go out and invest in a nice you know Government Bond mutual fund you don't have to worry about that is most likely you know going to go up and if it doesn't go up this month over time it will one thing charts like this show is that the conditions for buying a home change recently they've been kind of bad they might not always be but
if you're looking for long-term Investments to grow your wealth even if you rent your home a house is not your only [Music] option
