- The U.S. housing market faces a big problem in the form of weak affordability.
- Loose lending in 2020 could create a toxic situation.
- Lower credit scores pose another problem.
For the U.S. housing market, things are about to take a turn for the worse in 2020. There have been numerous signals that the U.S. housing market – which is nothing more than a bubble – could unravel soon. But there is one specific reason why the bubble could burst next year.
The biggest threat to the U.S. housing market
Home prices have been increasing at a breath-taking pace. According to data from Zillow, the median price of a home in the U.S. is $231,700, up 4.7% in the past year. In December 2013, the median value of a home in the U.S. was $163,300. This means that the average value of a home in the U.S. housing market has gone up over 42% in the past six years, according to Zillow data.
For comparison, the average hourly wage stood at around $20 in 2013. The average hourly wage is now approaching $24, which translates into a rise of less than 20% over the past six years.
Clearly, home prices have outpaced wage growth. Not surprisingly, housing affordability in the U.S. has dipped of late. According to ESRI’s (Environmental Systems Research Institute) Housing Affordability Index (HAI), Americans have been stretching their budgets to buy a house.
ESRI’s 2018 HAI index reading of 124 was below the prior year’s reading of 129. An HAI reading of more than 100 means that an average U.S. household has sufficient income to qualify for a home loan based on the median sales price. The decline in this reading means that homes are getting more expensive while household incomes aren’t growing.
According to a report on…