- calendar_month January 29, 2024
Reflecting on 1995 may evoke memories of routine Thursday nights watching Seinfeld without the luxury of DVR and Friday evenings spent browsing the aisles of Blockbuster for the latest movie releases (remember the Braveheart and Clueless double feature?). In the workplace, computers likely operated on the Windows 95 platform, and the internet was still in its nascent stages, with only 2% of homebuyers venturing online for property searches.
But why draw comparisons to 1995 in the context of the housing market? The annual pace of existing-home sales in 2023, totaling 4.09 million, marked the lowest figure recorded since 1995 when it stood at 3.85 million. This blog aims to dissect this 29-year comparison, shedding light on the changes and challenges that buyers faced last year.
In 1995, the U.S. population was 266.6 million, while today it has grown to 336.0 million. The apparent discrepancy in home sales numbers becomes clearer when considering factors like inventory and affordability. December 1995 saw 1.58 million single-family homes available for purchase, compared to a mere 870,000 in December 2023. The months' supply decreased from 4.8 months in 1995 to 3.1 months in 2023.
Housing affordability emerges as the second major hurdle. In 1995, the median home sales price was $114,600 (inflation-adjusted to $227,826), while in 2023, it reached a historic high of $389,800. The good news for existing homeowners and potential repeat buyers comes with challenges for new first-time buyers. Mortgage interest rates averaged 7.93% in 1993, contrasting with the 6.81% average in 2023.
Examining the housing affordability index, qualifying income, and mortgage payment percentage of income provides insights into the changing landscape. In November 1995, the affordability index was 126.9, with a qualifying income of $32,112 (equivalent to $64,192 in November 2023), and a mortgage payment representing 19.6% of income. In November 2023, the affordability index was 94.2, the qualifying income was $105,504, and the mortgage payment as a percentage of income rose to 26.5%.
Considering these affordability and inventory measures, it's no surprise that homebuyers in 1995 differed significantly from today. The 1995 Profile of Home Buyers and Sellers reveals that 42% of buyers were first-timers, compared to a historic low of 32% in 2023. First-time buyers in 1995 were younger at 31 years old, while today's average age is 35. The present reality demands longer saving periods for buyers contending with debt, such as student loans, a less common concern in 1995.
Despite the challenging data, there is a silver lining. In 2023, 89% of buyers enlisted the help of real estate agents, compared to 81% in 1995. This shift underscores the crucial role agents play, especially in the current environment of limited housing inventory.
Looking ahead, there are positive signs for 2024. Mortgage interest rates are receding, buyers are becoming more active, and new housing construction is introducing more inventory into the market. If these trends continue, 2024 could signal a more optimistic note for the housing market.
Deputy Chief Economist and Vice President of Research
Dr. Jessica Lautz is the Deputy Chief Economist and Vice President of Research at the National Association of REALTORS®.
