Why has the American Dream become so expensive?

Why has the American Dream become so expensive?

What is the American Dream? This is a life of abundance, accessible to every person. Stable high income, a personal car and a big house as the main symbol of this dream. Traveling around the States, you can see all these beautiful, cozy mansions that are reality, not fiction. However, over the past 3 years there has been increasing evidence that the American dream will soon come to an end. Why?

Because back in 2019, the median income for Americans was $68,000, and the median home cost $260,000 with a 4% mortgage rate. A down payment of $8,000 was required to purchase a home with a mortgage, and the monthly payment was $1,600, including taxes and insurance. Until 2020, the average family could afford to buy a home under these conditions. What has changed?

Why has the American Dream become so expensive?Why has the American Dream become so expensive?photo: obankax.com

At the height of the coronavirus pandemic in 2021, the interest rate dropped to 2.5%, which led to an increase in demand for mortgage lending. People who bought houses at that time are really lucky. After all, the United States is one of those countries where mortgages are given at a fixed rate for 30 years and it does not change under the influence of, for example, inflation. That is, having taken out a mortgage 10 years ago, people continue to pay the same amount, despite the fact that salaries have doubled. Some people still pay only $ 500-700 a month for huge houses, having taken out a mortgage on them 15-20 years ago.

After 2021, inflation hit. Now in 2024, the average family income in America is 80 thousand dollars, while houses cost 400 thousand, and the rate is 7%. Accordingly, the first installment must be paid in the amount of 80 thousand, and then pay 2600 every month. Not surprisingly, demand for mortgages has plummeted. The middle class cannot afford such expenses, given the additional costs of rent and children's college education. But the real estate market is growing thanks to rentals. Renting a house has become much more profitable than buying one. Previously, you could pay 1,600 a month and live in your own house, but now it is unrealistic to get a mortgage for this amount, especially in large popular cities.

Why has the American Dream become so expensive?Why has the American Dream become so expensive?photo: istockphoto.com

In addition, there are dozens of large companies, and sometimes they buy hundreds of houses in one area, after which they rent them out at prices lower than the monthly mortgage payment. And many Americans live in rented housing instead of owning their own. Of course, even now there are people buying real estate at 7%. If the rate falls, they will be able to refinance payments at a new interest rate, especially since inflation does not last forever. Someday rates will become lower.

There are those who predict a drop by the end of 2024. Some are betting on Trump's victory in the presidential election and the stabilization of rates in the country. His economic agenda is no different from the one Biden is currently pursuing, with people's incomes rising quickly and rates remaining low. Therefore, in the next few years there may be an opportunity to purchase real estate at affordable prices, as was the case quite recently. You just need to wait.