A Housing Crisis for Who?

The negative effects of escalating housing costs are not felt equally. In fact, for people who already own homes, the growing value of their asset might be felt as a benefit.

Unlike something like inflation, people experience housing costs in dramatically different ways.

First-time homebuyers

People trying to make the transition from renting to buying are in the most difficult position currently. The cost of buying a house has vastly outstripped wage growth, meaning entire professions that could afford to buy a house 5 years ago are now priced out of the market. In 2023, 32% of home buyers were first-time purchasers, according to the National Association of Realtors. That’s below the historical average of 38%.

Renters

Renting has always been tough for many people in the Milwaukee metro. In 2019, the Census Bureau estimated that 21% of renting households spent half or more of their income on rent. That increased to 25% in 2022. The recent peak was 28% in 2011.

About 27% of renter households in the Milwaukee metro include no employed people. Many of these are likely retirees while others are students or live on public assistance. On average, wage gains in the Milwaukee metro have mostly kept pace with rent increases. The average rent cost 31% of the average full time wage in 2019 and 32% in 2023. But for quarter-plus of renting households on a fixed incomes, affording rent has probably become much more difficult.

There are also some specific jobs where wage increases have not kept pace with rent increases. Butchers, for instance, have seen the average rent grow from 34% of their median annual wage to 40%. For bus drivers, rent has grown from 26% of the average full time wage to 32%. People who “manually move freight, stock, or other materials” saw their typical annual wages increase by $4,890 between 2019 and 2023, but that still lost ground compared to rent. The average rent was 38% of their typical salary in 2019 and 41% in 2023.

Some other common low-paying jobs did see real wage gains relative to rent, but rent still remains a very high share of the typical wage.

The typical salary of a home health aide grew by 27%, from $24,140 in 2019 to $30,750 in 2023. The typical rent was 53% of that salary in 2019 and 51% in 2023.

Similarly, the typical salary of a retail salesperson grew by 34%, from $23,730 in 2019 to $31,750 in 2023. The typical rent was 54% of that salary in 2019 and 50% in 2023.

Existing homeowners

People who bought their houses before 2021 have enjoyed enormous gains.

I identified nearly 60,000 single family homes in Milwaukee for which I have purchase data. For each house, I calculated the monthly interest and principal on the home, assuming the owner took out a 30-year fixed-rate mortgage at market-rate interest rates, while paying 5% down. Then, I calculated the principal outstanding on the loan as of September 2024. I compared this to the 2024 assessed value of them home to find the owner’s current equity in the house.

People who bought homes after or during the mortgage foreclosure crisis have enjoyed great appreciation at low monthly costs.

Among the 2,800 present-day homeowners who bought their house in 2017, the median principal+interest payment is $666 and the median equity accrued is $97,700. By contrast, if the 1,990 present-day homeowners who bought their houses in 2004 had kept an original 30-year mortgage, their median payment would be $746 and their accrued equity $91,900. Hopefully, those homeowners who bought in 2004 had the good sense to refinance into a lower interest rate.

Refinancing into a lower interest rate has not yet been an option for those people who bought a home in the last couple years. Assuming a 30-year mortgage and 5% down, I estimate the median monthly payment of principal + interest at $1,164 and $1,432 among those who bought in 2022 and 2023, respectively. Put differently, the people who bought a house in 2023 are paying twice as much in principal and interest as their neighbors who bought a house in 2017.

Far from being a crisis, the current housing market has dramatically increased the paper wealth of most existing homeowners–without significantly increasing their housing costs.