Affordable: The Most Dangerous Word in Finance

Picture the perfect deal: 50% off everything in the store.

You walk in planning to buy one item. You leave with ten. The savings were too good to pass up. Your bank account says otherwise.

That's housing affordability in 2025. Clients think they're getting a deal because they can "afford the payment." Meanwhile, they're liquidating decades of compound growth to chase monthly cash flow math that doesn't add up.

The most expensive word in finance isn't "leverage" or "speculation." It's "affordable."

And it's destroying client wealth faster than any market crash could. Because unlike crashes, this destruction is voluntary—and clients think they're being smart while they do it.

In today’s email:

• Why 2025 is worse than the 2006 housing bubble (and relief won't come for 5+ years)

• The jobs report that sent Fed rate cut odds from 40% to 75% in a single morning

• The 3-question framework that stops clients from liquidating portfolios for "affordable" housing

Let’s dive in!

Industry Insight: Worse Than 2006, Longer Than Expected

The numbers are brutal—and getting worse.

U.S. home prices are currently less affordable than at the height of the 2006 housing bubble, according to J.P. Morgan Research. But here's the kicker: relief is still about 2 years away nationally, and 3+ years for major cities. 

The affordability damage is measurable:

• 54% of renters are now "cost-burdened"—spending more than 30% of income on housing

• First-time buyers' median age jumped from 49 to 56 in just one year

• Home prices have surged 45% over 15 years while wages flatlined

The regional reality is even starker. Cities like Austin and Tampa—once affordable havens—now require household incomes exceeding $100K just to qualify for median-priced homes. Meanwhile, the national housing shortage has hit 4.4 million units—the largest deficit on record.

Here's the behavioral shift you're seeing: clients are making increasingly desperate financial decisions. They're pulling from 401(k)s, liquidating taxable accounts, and accepting mortgage payments that consume 40%+ of income—all because they've been convinced that "waiting means higher prices."

The portfolio carnage is real. A recent client of an advisor liquidated $270K in growth stocks (that had doubled since 2020) to buy an $850K starter home—using $170K for the down payment, $25K for closing costs, and keeping $75K as a "safety net." Their monthly housing costs jumped from $2,900 in rent to $5,530 in PITI—while their investment runway vanished overnight.

Here's what's concerning: this client never explored financing alternatives. No evaluation of portfolio-based lending, partial cash approaches, or other strategies that might have preserved some investment positions. They went straight to "liquidate everything"—without comparing it to other options that could have achieved the same homeownership goal with different wealth implications.

The cruel math: A $400K budget that bought a move-in ready home a decade ago now gets you a fixer-upper—if you're lucky. In high-demand markets, that same budget barely covers a down payment on what used to be entry-level housing.

The hidden wealth destroyer: clients think they're building equity, but they're actually trading liquid, appreciating assets for illiquid, leveraged real estate at peak valuations. It's the opposite of good financial planning—disguised as homeownership.

Macro Watch: The Jobs Report That Changed Everything

The economic narrative just got flipped upside down—and it happened in one morning.

July's jobs report delivered a shock: only 73,000 jobs added versus 100,000 expected. But the real bombshell was the revisions. May and June jobs were revised down by a combined 258,000—meaning the economy has been far weaker than anyone realized.

The three-month average is now just 35,000 jobs—the weakest since the pandemic. Without healthcare jobs, the economy would have shown net job losses in recent months.

Market reaction was swift: Fed rate cut odds for September jumped from 40% to 75.5% in a single day. By Monday morning, those odds hit 83.4%—showing how rapidly the economic narrative can shift. Economists are calling it a "gamechanger" report that reveals hidden economic weakness.

The Fed's dilemma deepens: Just days after holding rates steady citing a "solid jobs market," Powell now faces data showing the labor market has been deteriorating for months. His warning about tariffs causing "slower growth and higher unemployment" is looking prophetic.

For your housing-stressed clients, this creates a cruel paradox: faster rate cuts might provide mortgage relief, but economic weakness could trigger the portfolio volatility that makes liquidating investments for housing even more destructive.

Bottom line: The economy may be weaker than the Fed thought, which could accelerate rate relief. But it also means clients who've already sacrificed portfolio positions for unaffordable housing are now more vulnerable to both market volatility and potential income disruption.

Advisor Tips: The Affordability vs. Wealth Framework

Stop letting clients confuse "affordable monthly payment" with "wealth-building decision."

When clients say they found an "affordable" house, here's your diagnostic framework:

1. The Lender vs. Wealth-Builder Analysis
Ask: "What percentage of your income will housing consume, and what does that mean for your other financial goals?"
While lenders may approve DTI ratios up to 43-45%, wealth-focused advisors dig deeper. They analyze how homeownership affects ability to save for retirement, invest, and maintain financial flexibility—not just monthly payment capacity.

2. The Liquidity Sacrifice Assessment
Calculate: "How much investment capital are you liquidating for this purchase?" 
Then model what that money could be worth in 10-15 years if it stayed invested. Make the invisible cost visible.

3. The Portfolio Recovery Timeline
Project: "How long until your investment portfolio recovers from this withdrawal?"
Most clients don't realize that a $200K portfolio withdrawal takes 7-10 years to rebuild—assuming they can resume their previous savings rate, which housing-cost-burdened clients rarely can.

Your repositioning: "I understand you want to own a home. Let's make sure the house you buy makes you wealthier, not just housed. There's a difference."

Strategic alternative: Instead of liquidating growth assets, explore portfolio-based lending that preserves investment positions while accessing liquidity. Let compound growth work for your client, not against them.

Ready to protect clients from affordability-driven wealth destruction?