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Hello and welcome. You are listening to Patrick Boyle on Finance, a podcast exploring ideas from

quantitative finance, examining events occurring in markets right now and financial history

to see what lessons can be taken away, including interviews

with some of the most interesting people in the world of finance.

To learn more about the podcast, visit onfinance.org.

The U.S. real estate market has frozen up.

We're seeing the lowest number of homes listed for sale in 40 years controlling for at the time of year, and a collapse in housing affordability driven by the recent increase in interest rates.

In 2021, a home buyer with a 20% down payment and $2,500 a month to spend on their mortgage

payment would have been able to buy a $758,000 home.

That same mortgage payment today would only buy a $424,000 home.

You would expect a decrease in affordability like this to hit house prices,

but US house prices are instead hovering near their all-time high. According to Redfin,

a real estate firm, in 2012 in order to be able to afford to buy a median priced home in the United

States, home buyers needed to earn $45,000 per year. Today they need to earn $115,000 per year

to afford the median priced home. That calculation is based on the idea that affordability means spending

no more than 30% of your income on your monthly mortgage payment. So how can house prices

be sitting near record highs with borrowing costs also near 20 year highs? If a $2,500 monthly payment used to buy you a $758,000

home just two years ago, and now it only buys you a $424,000 home, has the average home

...