What does the housing market of 1995 have in common with today?

Recently, the National Association of Realtors (NAR) released an article comparing and contrasting the US housing market in 1995 vs today. I've summarized the key points below. Sometimes we forget about cycles, but they are always there and they will always exist in some way shape or form. 

Why 1995? Well the annual pace of existing-home sales in 2023, at 4.09 million, was the lowest since 1995, but as we delve into the details, it becomes evident that the two eras are vastly different.

Population Growth and Inventory: In 1995, the U.S. population was 266.6 million, compared to today's 336.0 million. Despite the increase, home sales were hampered by a significant decrease in inventory. In December 1995, 1.58 million single-family homes were available, while December 2023 saw only 870,000. The months' supply dropped from 4.8 to 3.1 over the years.

Housing Affordability: Housing affordability became a major hurdle, with the median home sales price reaching a historical high of $389,800 in 2023, compared to $114,600 in 1995 (inflation-adjusted). Mortgage interest rates, though lower in 2023 at 6.81%, posed challenges for first-time buyers.

Affordability Index and Buyer Profile: The housing affordability index in November 1995 was 126.9, with a qualifying income of $32,112. In November 2023, the index dropped to 94.2, requiring a qualifying income of $105,504. First-time buyers in 1995 constituted 42% of the market, but in 2023, this share hit historic lows at 32%. Today's first-time buyers are older, at 35, compared to 31 in 1995.

Buyer-Agent Dynamics: Interestingly, the use of real estate agents increased from 81% in 1995 to 89% in 2023. With limited housing inventory, buyers turned to agents to navigate the challenging market and find the right home.

2024: A Glimpse of Hope: Despite the challenges of 2023, there are positive signs for 2024. Mortgage interest rates are receding, and there's an uptick in buyers entering the market. New housing construction is bringing more inventory, hinting at a potentially better year for the housing market.

As we compare these two periods, it's clear that the landscape has evolved, presenting both challenges and opportunities for homebuyers. The hope is that the improvements seen in early 2024 will pave the way for a more favorable housing market in the coming months.