The most expensive material asset that the typical American will ever buy is the home that they purchase and live in. The buying of such a home usually is considered to be part of the American dream, not only does it represent the family's castle, so to speak, but also is a positive indication that this family has put down roots within their community, and a family that is committed to their community, makes for a better community. Not too surprisingly, the Federal Government believes that Americans should own homes and have constructed policies to make housing more accessible for citizens by providing the guarantees behind the banking mortgage loans and valuable tax breaks for the buyers of homes.
The thing is, while the governmental desire for more Americans to own homes seems to be the right thing to do, the structure and pricing of housing today is out of sync with the realities of family size, savings, income, and leverage. For instance, the average size of families has declined from 3.67 persons in 1960 to 3.14 persons in 2015; additionally the average size of households (all persons living under one roof) has declined from 3.33 persons in 1960 to 2.54 persons in 2015, yet despite these changes the average size of a house in square footage as reported by Trulia.com was approximately 1,540 sq ft in 1960, as compared to 2.370 sq ft in 2010. Additionally, the savings rate for Americans was about 8% in 1960, whereas it's 5.4% as of February, 2016. In regards to income, as reported by davemanual.com, the median income inflation adjusted income was $53,657 in 2014 as compared to $44,284 in 1967, or a modest increase of just over 21%; all this despite the fact that the labor participation rate by females has grown considerably since that time, and to which there has been a near doubling or more of married families in which both parents are working.
A careful look at the facts of the situation, would imply, that housing rather than getting bigger in size and hence more expensive to buy, own, and maintain, should, in fact, be getting smaller in size as a fair reflection of near-income stagnation, general job insecurity, smaller household sizes, and a significantly less savings rate of monetary savings. Instead, despite the housing meltdown of 2007-2009 of overpriced, under qualified and highly leveraged housing collapsing upon itself, America and its policies have not learned or changed much in the interim, with the exception of basically eliminating the most egregious errors such as "liar loans". The fact of the matter is that the more highly leveraged any investment is, the more volatile and hence the less secure that investment will be, and housing is, obviously, no exception to this rule. Housing is the only investment, to which it is typical that payments will extend out for thirty years, to which your employment years might only be some forty-odd years, signifying that for most people, a mortgage payment will coincide with a paycheck for the vast majority of their working life.
The bottom line is that the housing market in general has far too many houses for sale that are larger than really needed, for more money than is necessary, for less down payment than what is prudent, and for a longer period of payment time than is sensible. All of this combined, means Americans are insensibly paying for more house than they really need, and often purchasing such homes, before establishing a 20% down payment, a proven savings as well as earnings record, while also lacking an appropriate debt-to-income ratio. It then follows, since housing is overall highly leveraged, that housing prices reflect this leverage by being higher than what they need to be, and therefore the consumer is paying more for a home than necessary; whereas more prudent and sensible standards for loans in the first place, would actually make housing both more affordable as well as more practical.