The American Home Buying System is Broken

If you ask this question: "Is the American home buying system normal?"

Objectively, the answer is "no". For the most part, the current system — which revolves around 30 year mortgages —  was created by central banks to conceal their inflationary policies and make property seem affordable — the old “who cares what the price is if the payments are low?” trick (a ploy that may be familiar to anyone who has shopped at an auto dealership).  Sure there have been 'shiny baubles' that have distracted us for the last century and probably made many of us think 'all is well' -- but, like a diet of junk food -- its fun in the beginning but bad in the end; not the players on 'main street' mind you -- there is nothing wrong with real estate as a business or mortgage lending (at the local level), or any of that. The problem is at the very top - where the money polices are made (in the halls of the central bank we call the Fed where the unelected governors make decisions that are rarely focused on the average American's interests). 

The reality is that, we've been taxed to a practical breaking point when one views housing and land costs as a percentage of income. When viewed thus, land prices were massively lower before central banking policies evicerated American buying power and people had far less of a need for mortgage debt (which comes with lots of strings attached). For example, in 1918, the median income was approximately $1,000 but the average cost of an acre of land was only $70. An entire home could be bought from a Sears catalog, delivered and constructed for as little as $750. This meant that, an entire acre of land and a brand new home could be had for LESS than the average annual salary.

Today the median American income is $62,000 but the average home price is $422,000 — it now costs approximately 7 times the average annual salary to buy a mid-tier home. But it gets worse. That’s because most homes aren’t on a full acre anymore — the average lot size is less than a Fifth of an acre (and getting smaller). What’s worse,  residential acreage is  much more scare and far more costly today than it ever was—  $200,000 per acre is considered competitive in many markets (and that's when a 'spare' unattached acre can even be found). This puts the total cost of home and land ownership even further out of reach and this is to say nothing of the overall downward trend in the quality of  building materials, skyrocketing insurance rates or the absurd hoops that new home buyers are forced to jump through to qualify for mortgages. 

So what can be done?  This isn't just talk -- as of this writing, some of the highest ranking government officials have been questioning whether the Fed (arguably the World's central bank), is really providing a true benefit to the citizens of this Republic. What is more, central banking is a comparatively new construct -- it is not a constitutional office and tends to serve only a very limited cadre of citizens well while severely taxing the remainder (mostly via inflation).  And so, to identify the solution, first we must identify the problem. 

The issue is simple in principle but complex in application. Substantively it boils down to this: As far as land is concerned, the first step is remembering that what we think of today as the real estate market is not normal and that we know we can have better because we HAD better before.  From there, sticking to ‘real money’  will help prevent these sky-high price hikes for the average citizen.