Executive Summary
The median after-tax household income is about $70,000, while the median sales price of houses is $420,000. When including a 20% downpayment, estimated taxes and insurance of $6,400, a 30-year mortgage at 7% would come to a total payment of about $2,768 per month. This represents 48% of after-tax, median household income, compared to the standard of no more than 30% spent on housing. Looking further at households, the first two graphs show credit card balances at highs, as well as delinquency rates not seen since the 2008 Financial Crisis. Tack on the average student loan payment and a used car payment, and average households would be spending almost 66% of income on debt service. And to see the impact on the housing market, look at the third graph. This shows mortgage applications to purchase houses are down 63%, or down to thirty-year lows. The data indicates house prices may be falling over the next 1-3 years.
Please proceed to read The Details below for more information.
“A budget tells us what we can’t afford, but it doesn’t keep us from buying it.”
–William Feather
The Details
Through personal discussions with realtors lately, most expect the housing market to pick up in the near future, despite higher mortgage rates. In this missive, I will review a hypothetical household, using median and average household data. In the end, I believe it will be apparent that the current expectation might be a bit optimistic.
According to Federal Reserve data, real median gross household income in the United States is about $80,000 per year. After-tax income is roughly $70,000. The median home sales price is around $420,000. Assuming a 20% down payment, the monthly payment on a 30-year mortgage at a current rate of 7% would be $2,235. This is before property taxes and homeowner’s insurance. Assuming annual property taxes of about $4,000 and insurance premiums of $2,400, the total monthly payment now comes in at around $2,768. This monthly payment represents 48% of after-tax median household income. The average rule-of-thumb when determining what the maximum percentage of income that should be spent on housing costs is 30%.
And, according to Lending Tree, total credit card debt in the U.S. has skyrocketed to almost $1.2 trillion (see chart below). The average household maintains a balance of about $10,000. Lending Tree reports the average household spends roughly $274 per month on credit card payments. The current interest rate on unpaid balances is over 20%.

As shown in the graph below, the 90-day plus delinquency rate on credit cards was 11.3% in the third quarter of 2024. This level hasn’t been seen since the Financial Crisis.

Also reported by Lending Tree, “Average auto loan amounts reached $41,086 for new vehicles and $26,091 for used vehicles in Q3 2024, according to Experian.” The average monthly payment on a new car reached $737 and on a used car, $520.
Total student loan debt has soared, reaching a whopping total of about $1.8 trillion. The average monthly payment on student loans is about $280.
So, let’s summarize the monthly debt payments for an average family who wants to buy a house, has student loans, and a loan on one used car. The house payment is $2,768, one used car payment, $520, monthly credit card payment, $274 and student loan payment of $280. In total, this household would be paying $3,842 or 66% of their after-tax income to satisfy their monthly debt service. That leaves only $1,991 to cover all other monthly expenses and savings.
According to Re:venture Consulting, mortgage applications to purchase have plummeted 63% from the pandemic peak and are down to 30 year lows as shown in the graph below.

I have been explaining for some time how economic growth is slowing, and a recession could be declared in the near future. The graph below shows that household income expectations for the next 1-2 years, according to the University of Michigan Consumer Survey, fell to their lowest level on record, as shown in the following graph from Bloomberg.

Unless mortgage rates fall back to 5% or below, the average household will not be able to afford a new home. The rising debt burden combined with rising long-term interest rates is straining household budgets. The personal savings rate is a mere 4.4%. In addition to rising interest rates impacting home ownership, insurance and property taxes are on the rise in many locations.
Without a considerable drop in mortgage rates, it is my opinion that the average household is too leveraged to buy homes at current prices. I believe that housing prices will fall significantly in some areas, over the next 1-3 years. But it is important to remember that the three most important factors when buying a home are location, location, and location.
The S&P 500 Index closed at 5,827, down 1.9% for the week. The yield on the 10-year Treasury Note rose to 4.77%. Oil prices increased to $77 per barrel, and the national average price of gasoline according to AAA rose to $3.07 per gallon.
© 2024. This material was prepared by Bob Cremerius, CPA/PFS, of Prudent Financial, and does not necessarily represent the views of other presenting parties, nor their affiliates. This information should not be construed as investment, tax or legal advice. Past performance is not indicative of future performance. An index is unmanaged and one cannot invest directly in an index. Actual results, performance or achievements may differ materially from those expressed or implied. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy.
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