As a general rule, you don’t want to be spending more than a third of your monthly income on housing.

If you are, you’re cost-burdened. That goes for renters and homeowners.

If you’re spending 50% or more of your income on housing, you’re “severely” cost-burdened.

As you might imagine, a lot of Americans count as “burdened” these days. For example, almost half of the 43 million renter households the Census Bureau assessed to calculate rent burden for 2023 counted as cost-burdened. So, more than 21 million renter households (and “house”holds seems like a cruel misnomer for renters) spent 30% or more of their income on housing costs in 2023, according to the latest update.

Regular readers will recall the November 2023 Monthly Letter, “Ghost Town.” In it, I mentioned academic work by Penn’s Dennis Culhane, one of America’s foremost authorities on homelessness. His research identified two key rent thresholds beyond which the incidence of homelessness for a given community should be expected to increase. Once the share of income spent on rent reaches 22%, more people experience homelessness. Once that share hits 32%, community leaders can expect a “rapid” (as he put it) increase in homelessness rates.

With that in mind, consider the figure below which uses Redfin’s datasets to paint a disconcerting picture for homeownership using the same threshold.

As you can see, the Fed’s rate-hiking cycle condemned the “median” American to an affordability crisis.

That’s what happens when a sudden, rapid acceleration in property price appreciation is followed immediately by a sudden, sharp increase in financing costs: The “typical” American household can no longer afford the typical home, or at least not comfortably.

In their analysis, Redfin set about determining when the median mortgage payment-to-income ratio will return to “normal,” defined as July of 2018 levels.

Obviously, it all depends on price growth, wage growth and, crucially, mortgage rates. If rates fall to 5.5%, income growth stays at 3.9% and home prices fall 2% YoY, we’d see “normal” conditions again in late 2027. If, on the other hand, mortgage rates stay stuck where they are and price growth continues along at 1.5%, “normality” won’t return until late 2034.

Suffice to say it’s gonna be a while any way you cut it. Over the long weekend in the US, Scott Bessent said Donald Trump might declare a national housing emergency later this year.