The Unaffordable American Dream? Tracing the History of Housing Costs in the U.S.

Owning a home is an integral part of the American Dream. For many, however, it's looking like a fantasy. How did we get here?

The Unaffordable American Dream? Tracing the History of Housing Costs in the U.S.
Rising housing costs are making the "American Dream" more dream than reality.

Owning a home is a quintessential part of the American Dream, as it represents a gateway to greater stability, personal and financial security, and the potential for long-term wealth creation. However, the evolution of housing affordability in the United States has made this dream increasingly challenging for many Americans to achieve.

From the post-World War II housing boom to the 2008 financial crisis, real estate has experienced significant changes. In the early 2000s, the average price of a home was a relatively modest $119,600. Fast-forward to today and that figure has skyrocketed to an estimated $420,700 – a staggering increase of more than 250%.

This dramatic shift in housing affordability has far-reaching implications for the nation's economy, social fabric, and how easily people can find a place to call home. This article will dig into the various factors contributing to this evolution, examining the foundations of affordability, economic shifts, and potential resolutions to ease housing affordability in America.

A Backstory of Housing Affordability

Here's a summary of housing affordability in the United States over the past few decades.

The 1950s and 1960s

Following World War II, the U.S. experienced a housing boom fueled by the GI Bill and the growth of suburbs. Homeownership became more accessible to middle-class families, and housing prices remained relatively affordable compared to income levels.

The 1970s and 1980s

During this period, housing prices increased rapidly, outpacing income growth. Inflation, high interest rates, and increased demand for homes reduced affordability. However, homeownership rates continued to climb.

The 1990s and early 2000s

Housing prices surged during this period, particularly in the late 1990s and early 2000s. The dot-com boom, easy credit, and speculative investing fueled a housing bubble. Homeownership peaked in 2004 despite rising costs, with nearly 70% of American households owning their homes.

The late 2000s

The housing market crashed in 2007-2008, triggered by the subprime mortgage crisis. Millions of homes went into foreclosure, and prices plummeted. Affordability improved during this time, but access to credit became limited.

The 2010s to present

The market slowly recovered after the housing crisis. Prices have steadily risen, particularly in urban areas, while income growth has remained relatively stagnant. This has led to a growing affordability crisis, with many Americans struggling to find affordable housing options. Renting has become increasingly common, especially among millennials and Gen Z.

Recent Economic Shifts Driving Housing Costs

If there’s one thing that has had a massive impact on housing affordability, it’s the economy. Different economic factors directly influence the supply and demand for houses, pricing, and availability. These include:

  • Economic growth  - Although the U.S. economy has grown, the climb has slowed incredibly. This, coupled with the high inflation of goods and rising unemployment rate, means people barely have enough to live, let alone buy a home.
  • Interest rates - From buying a house to buying a car, interest rates have climbed nonstop since the post-pandemic era. The current Federal Funds effective rate is over 5%, a sharp increase from the 0.33% recorded in April 2022. This deters many potential buyers from applying for a mortgage.
  • Limited supply - The U.S. needs more than 7.2 million housing units, which has increased the prices of the few available homes.  
  • High inflation rate - Rising inflation affects the cost of living and increases the cost of construction materials. This has discouraged many home builders from starting construction projects, thus causing a shortage in supply.

The Modern Era of Affordable Housing Solutions

The construction industry has evolved significantly in recent years. Numerous factors have fueled this transformation, some improving housing affordability in the long run. They include:

  • Use of sustainable materials: Recycled steel, bamboo, reclaimed wood, and recycled glass are examples of sustainable materials used by modern-day construction firms. In addition to conserving the environment, these materials make housing more affordable by being cheaper and more durable.
  • Technology integration: Many construction companies have embraced innovative solutions like 3D printing, Building Information Modeling, and drones. These technologies improve efficiencies, productivity, and quality of construction. This lowers the overall cost of construction, which translates to more affordable housing.
  • Modular construction involves using prefabricated materials, which are then transported and assembled at the job site to create entire structures. One benefit of this is that it helps minimize waste, reducing the overall construction cost.
  • Developing smart cities: Another trend witnessed in the construction sector is the creation of smart buildings and cities like the Hudson Yards in New York City. These areas offer better infrastructure, improved public utilities, and numerous economic opportunities. This trend can boost the locals’ earning potential, making buying or building a home possible.

Resources for Prospective Homebuyers

While rising home prices and stagnant wages have made it challenging for many prospective buyers to afford a home, even to the point of causing depression, there are signs of hope on the horizon. Initiatives such as down payment assistance programs, community land trusts, and innovative financing models are helping to bridge the gap and make homeownership accessible to a broader range of Americans.

If you're looking to explore your options in today's housing market, NewHomesMate is here to help. Our platform connects prospective homebuyers with a network of trusted builders, developers, and industry experts, providing the tools and resources needed to maneuver the complicated world of new construction.

Whether you're a first-time buyer or looking to downsize, NewHomesMate can help you find the perfect home to fit your budget and lifestyle. Start your search today to view the beautiful homes on our platform and take the first move toward making your homeownership dreams a reality.

New way to buy a new construction home

Search and Discover New Homes