“Notice that, while lots of people are happy to tell you about Golden Ages, nobody ever seems to think one is happening right now. Maybe that’s because the only place a Golden Age can ever happen is in our memory.” – Adam Mastroianni
One of my favorite housing memes is “Boomers selling their homes for $2 million after buying them in 1969 for 7 raspberries.” It is a funny meme, but suffers from looking back at a Golden Age that never existed. There is a lot of generational discord between Boomers and Gen Z around home prices. We should look at the data to see whether the Boomers received an unfair bargain with housing prices.
To do this, the data from the past 50 years (1973-2023) was analyzed. Based on data from the Federal Reserve, the median price of a home has risen from $30,200 to $429,000 over this period. While this is significant, there are several other considerations. First, overall prices have also increased significantly as shown by the Consumer Price Index. Next, there are ongoing costs for a home for insurance, maintenance and taxes of about 2.4% per year. Finally, median home prices over time do not represent the home purchased in 1973 as the median size of homes has increased. Unless someone makes a significant remodel expense, the square footage of a house purchased in 1973 is still the same in 2023. To correct for this in the data, the home prices were converted to dollars per square foot.
As the graph shows, while home prices have risen by a factor of 14, once you account for ongoing fees, the overall rise in prices, and the change in median square footage, the median value of the home lost about 25% over the past 50 years.
The real value of a home purchased in 1973 was the avoidance of paying rent over the past 50 years. Even after inflation, this value is triple the initial purchase price of the home. Understanding this changes how one views home prices. If we view housing as a cost or cost avoidance instead of an investment, it changes our mindset. Our desire is for lower home prices (lower costs) rather than higher home prices (investment). Higher home prices lead to higher out of pocket expenses – specifically with home insurance and property taxes. Locally, it was time for a property tax reassessment this year. My property tax rose 94% in 2024 (no, I did not leave out a decimal). Likewise, home insurance rates have been rising sharply as the insured value of homes have increased. Higher home prices with their higher costs do not improve the experience of living in the home.
For members of Gen Z looking to buy a home, realize the primary benefit of home ownership is avoiding future rent. From this perspective, you should be less worried about timing a housing market dip for a well-timed investment and more interested in comparing the cost of home ownership to present and future rent.
