8 ms·

The median US house is now 4.9x median income, vs 3.5x in 1975

35 points by pg 17y ago

cjbos 17y ago
This compares the median income of 2001 with the median house prices of 2008... while no doubt it illustrates a point, the numbers a likely off.
- martythemaniak 17y ago
  One of the facts many people like the ignore is the fact that median income has stayed flat throughout the last decade.
  - dantheman 17y ago
    Despite massive inflation, which is still yet to be truly felt.
- jcromartie 17y ago
  You think people really make more money than they did in 2001? That's one of the things that is fueling the populist anger we see in the Tea Party movement. People want to know where their money has gone. Of course, the major exception is that the rich have made staggering gains in income (compared to the working class, when adjusted for inflation) over the last few decades. You can't tell me that they're just working that much harder than they were 30 years ago.
  - roc 17y ago
    > "That's one of the things that is fueling the populist anger we see in the Tea Party movement" ...And simultaneously one of the most ironic things about the Tea Party movement. While legitimately wondering where their money has gone, they're giving tacit support to policies that would only exacerbate the divide. (lowered taxes, increased selective deregulation, etc)
cperciva 17y ago
This change, while dramatic, isn't necessarily a sign of problems. Over the past 35 years, and especially in the past 10--15 years, the US (and most of the rest of the world) has progressively urbanized; in many areas, it has become the norm for people to live in condos rather than detached houses. I can't find any relevant data on the US Census website, but I strongly suspect that if you add duplexes, condominiums, etc. into the mix, you'll find that while houses have become relatively unaffordable, housing has not.
- Retric 17y ago
  Small apartments in a large city often cost more than a house in the suburbs. http://www.condo.com/ForSale/United-States/Virginia/22202 http://www.condo.com/ForSale/United-States/Virginia/22202 vs http://www.homes-for-sale-by-owner.info/5223.htm http://www.homes-for-sale-by-owner.info/5223.htm
  - MrFoof 17y ago
    I don't believe this is alone because of location. Building codes in cities are usually considerably stricter than those in the suburbs and ex-urbs, and meeting code itself requires more expensive design choices. Additionally, you're not going to build an inexpensively built, unnecessarily gabled raised ranch with a portico in the middle of a city, mostly because you wouldn't get approval because the aesthetics would conflict with the existing neighborhood. Price and location are not independent. I looked a while back in an MA suburb where 2300 square foot homes were being sold around $300K. I looked into buying an equivalent-sized empty plot just outside that subdivision on which to build a 1150 square foot "atomic ranch", and I was looking more at $500-550K for something half the size on a similarly priced plot.
    - Retric 17y ago
      Cost per square foot relates to both the building height and land costs. A ten story building on cheap land costs a lot more per square foot than a once story house. However, as the cost of land goes up that shifts. PS: I spend 1700$ a month on a 1br apartment because it's in a 20+ story building and on expensive land (great location). The problem with apartment buildings is they are only reasonable in expensive areas so their minimum price is even higher than the premium of building the building.
pragmatic 17y ago
Why can't people choose how to spend their own money? People choose to live in more expensive homes. They choose stainless steel appliances, solid wood floors, etc. All things that make the houses of the 70's look quite paltry. Again, the only reason we care in general is if we have to bail this people out because they chose homes they couldn't afford. In the natural order of things (if there is such a thing), if a homeowner couldn't make their mortgage, house goes back to bank. Banks don't want houses (no profit) so they naturally try to avoid people who are likely to stop paying their mortgage. Enter gov't interference, guaranteeing loans, etc and you have a huge distortion. So we(as a nation/gov't) probably should't have gotten involved in the housing market in first place.
- bokonist 17y ago
  If you break out the numbers further, it's land prices that have been responsible for the housing price increases, not the cost of construction. The main culprits are zoning laws. It's simply not possible to build duplexes or more densely packed homes in most suburbs, and so all the land gets spoken for and no more housing can get built.
  - cperciva 17y ago
    The main culprit are zoning laws. I disagree. The Vancouver area is one of the most expensive in the world for detached house (median house price > 10 x median income), but that's not for lack of denser housing options. I don't know anyone under age 40 who has even considered buying a detached house here; the default option is to buy a condo in one of the many towers which are going up, and the expensive "yuppie" option is to get a townhouse. Land is expensive because people want to live close to the city center; not due to excessive zoning restrictions.
    - dantheman 17y ago
      But excessive zoning restrictions exacerbate the problem. In Cambridge, MA there are significant limitations on how high buildings can be thus limiting construction of larger apartment buildings. This in turn drives up the cost of housing due to the lack of supply.
petercooper 17y ago
One reason I've seen cited in many of these new "edutainment" economics books for the rising price of housing is that more people choose to live alone than ever before. If more people live alone and want their "own place", the amount of demand goes up sharply while the supply grows at a more modest rate. Extended families certainly don't seem to be all the rage anymore..
- akgerber 17y ago
  Extended families get a little more hip now that banks aren't giving out money for nothing any more.
jcromartie 17y ago
The house I am (in the process of) buying is only 2.8x my annual income. It was also built in the 70s. There's a lot more potential in it as it is a more basic structure than a newer house would be.
fab13n 17y ago
House prices also raise because we have more unaffected money: - food represents a smaller and smaller proportion of our expenses; - manufactured goods also became more affordable, as they're produced either by robots or by 3rd world workers; - double-income families have become the norm. Since the housing market is essentially an auction system, with limited offer elasticity, it's natural that it swallows a large chunk of what could have been our disposable money growth. Now, there are other factors, especially in the USA, which will evolve: - the gold rush on estate as a speculative investment undoublty caused a bubble (although it only explains part of the price explosion). This seems now largely over. - by accepting to lend to everyone, banks have artificially increased the number of potential buyers, hence further increasing the prices reached by auctions. Now that those dummy buyers have played and lost with the banks' money, banks will have to acknowledge it as ARM-induced foreclosures unfold, and they'll probably be more careful before letting someone enter the house-buying game. So prices are very likely to go down, but not to go down as low as they were in the '70s, even in terms of income proportion.
jaxc 17y ago
This article has lot of facts and figures and i really apologise for just dropping this like this (late night/early morning) but with the median figures adjusted for inflation from consumer price index, I don't think its quite fair to say that you can just drop numbers and compare them to present day. I didn't see this mentioned but then again my eyes are really tired and maybe missing the point but: $148,800.00 house in 1975 is the equivilant of $595,484.88 in 2008 in buying power Median income of $42,936 in 1975 has buying power of $171,826.20 in 2008. Roles Reversed $245,300.00 house in 2008 in buying power is $61,295.66 house in 1975 $50,303 median income in 2008 is the equivilant of $12,569.73 in 1975 Buying power calculated using the inflation caluclator of http://www.bls.gov/data/inflation_calculator.htm http://www.bls.gov/data/inflation_calculator.htm "The CPI inflation calculator uses the average Consumer Price Index for a given calendar year. This data represents changes in prices of all goods and services purchased for consumption by urban households. This index value has been calculated every year since 1913. For the current year, the latest monthly index value is used." Now maths really isn't my strong point. Actually really bad and I know that there are many of you far far clever than me so I reserve judgement and hope someone can double check for me but i just wanted to mention this because I didn't see it discussed. (edit: i see it mentioned - sorry)
- lutorm 17y ago
  He states all numbers are inflation adjusted to the same year.
  - cjbos 17y ago
    I'm still confused here (Math is not my strong point either). He mentions he adjusts the income figures for inflation to compare 1975 income to 2001. He then mentions he adjusts house prices to inflation to compare 1975 prices to 2008. But what I don't understand is where he gets the 2008 median income figure from (Even adjusted to inflation) as he said he has no income data past 2001. He needs an actual figure before he can adjust right?
lssndrdn 17y ago
Accoring to this article, the income/home price ratio has gone 1950 -> 2.21 1960 -> 2.11 1975 -> 3.15 2008 -> 4.40 With housing bubble and all, it seems that this is part of a long-term trend. Choosing 1975 as the hypothetical standard of where the ratio might return seems completely arbitrary.
- jcromartie 17y ago
  > Choosing 1975 as the hypothetical standard of where the ratio might return seems completely arbitrary. My guess is that it's based on the notion that wages (for the average person, not for the rich) have been stagnant since about that time.
- ubernostrum 17y ago
  Anecdotally, the standard advice I've always heard is that you should look for a house priced at around 3x your annual salary, and that you should be able to make a 20% down payment. If it's not possible to find a reasonable house which fits that, then there's a problem somewhere.
Confusion 17y ago
What's missing from this article: a correction for the quality of the housing. That houses are 40% more expensive is hardly surprising when they are also 40% larger.
- lutorm 17y ago
  Not disputing your basic fact, I just want to point out that size != quality.
  - dockd 17y ago
    Yes but when the quality is roughly the same, square footage rules. Look at houses in the same neighborhood (better: same street) with zillow.com. You'll notice that square footage directly relates to price.
    - Dbug 17y ago
      That's because Zillow.com calulates values using square footage! Calculations don't make it so! I won't disagree that square footage plays a very significant role in value, but how significant will vary. Their estimates are interesting to look at, but are subject to error from many sources. A place with bad paint, a cracked/shifting foundation, termites, no central heat and a bad roof doesn't have those things properly accounted for. Also, one nearby property selling unusually high or low for some odd reason with throw off the numbers for the other properties nearby. I saw that with a apartment to condo conversion where the last unit went to a family member of the developer for a much lower price. As the other units sold, local houses were seeing a rise, when that last one sold there was a $30,000 drop. Even actual selling prices aren't too reliable of an indicator now with such a disturbed market. Bankruptcy sales (or panic sales to avoid bankruptcy) certainly can distort values. It'll vary with the market, but I think I'd feel safer testing estimated value against other criteria. The price is a fairly safe one if rental income could cover payments on a 30 yr fixed loan for 90% of the amount (the rest being the down payment). At least that method isn't so easily disturbed by erratic pricing nearby.
- bokonist 17y ago
deleted 17y ago
[deleted]
nazgulnarsil 17y ago
as a region becomes denser and zoning laws limit the speed at which the housing market reacts to changes in housing demand you'll see a rise in price vs other goods. this is normal.
mdxch 17y ago
Here's a calculator that I came up with that will "appraise" a house based on inflation normalized Case-Shiller home value data. It also spits out a couple of nice graphs so you can compare against historical values. http://homepricer.appspot.com/ http://homepricer.appspot.com/
AndrewDucker 17y ago
What does that comprise in mortgage terms? Very few people own their home outright - it's the affordability of the mortgage that really matters.
- aristus 17y ago
  40 years ago my parents purchased a house on a 7-year mortgage. At the time dad and mom were employed as a carpenter and a social worker, respectively. The price was about 3X their yearly income, they put up 30% up front, and they paid off the rest in 5 years. BTW, it was large enough to raise 4 kids and a flock of poultry. Today houses where I live cost 8-15X (!!) my family's yearly income, and the standard mortgage term is 30 years. Part off this is the shift from farm-country Texas to geekville San Francisco, but the other part is that homes are much more expensive compared to incomes than they used to be.

35 points by pg 17y ago

cjbos 17y ago

This compares the median income of 2001 with the median house prices of 2008... while no doubt it illustrates a point, the numbers a likely off.

martythemaniak 17y ago
One of the facts many people like the ignore is the fact that median income has stayed flat throughout the last decade.
- dantheman 17y ago
  Despite massive inflation, which is still yet to be truly felt.
jcromartie 17y ago
You think people really make more money than they did in 2001? That's one of the things that is fueling the populist anger we see in the Tea Party movement. People want to know where their money has gone. Of course, the major exception is that the rich have made staggering gains in income (compared to the working class, when adjusted for inflation) over the last few decades. You can't tell me that they're just working that much harder than they were 30 years ago.
- roc 17y ago
  > "That's one of the things that is fueling the populist anger we see in the Tea Party movement" ...And simultaneously one of the most ironic things about the Tea Party movement. While legitimately wondering where their money has gone, they're giving tacit support to policies that would only exacerbate the divide. (lowered taxes, increased selective deregulation, etc)

cperciva 17y ago

This change, while dramatic, isn't necessarily a sign of problems. Over the past 35 years, and especially in the past 10--15 years, the US (and most of the rest of the world) has progressively urbanized; in many areas, it has become the norm for people to live in condos rather than detached houses. I can't find any relevant data on the US Census website, but I strongly suspect that if you add duplexes, condominiums, etc. into the mix, you'll find that while houses have become relatively unaffordable, housing has not.

Retric 17y ago
Small apartments in a large city often cost more than a house in the suburbs. http://www.condo.com/ForSale/United-States/Virginia/22202 http://www.condo.com/ForSale/United-States/Virginia/22202 vs http://www.homes-for-sale-by-owner.info/5223.htm http://www.homes-for-sale-by-owner.info/5223.htm
- MrFoof 17y ago
  I don't believe this is alone because of location. Building codes in cities are usually considerably stricter than those in the suburbs and ex-urbs, and meeting code itself requires more expensive design choices. Additionally, you're not going to build an inexpensively built, unnecessarily gabled raised ranch with a portico in the middle of a city, mostly because you wouldn't get approval because the aesthetics would conflict with the existing neighborhood. Price and location are not independent. I looked a while back in an MA suburb where 2300 square foot homes were being sold around $300K. I looked into buying an equivalent-sized empty plot just outside that subdivision on which to build a 1150 square foot "atomic ranch", and I was looking more at $500-550K for something half the size on a similarly priced plot.
  - Retric 17y ago
    Cost per square foot relates to both the building height and land costs. A ten story building on cheap land costs a lot more per square foot than a once story house. However, as the cost of land goes up that shifts. PS: I spend 1700$ a month on a 1br apartment because it's in a 20+ story building and on expensive land (great location). The problem with apartment buildings is they are only reasonable in expensive areas so their minimum price is even higher than the premium of building the building.

pragmatic 17y ago

Why can't people choose how to spend their own money? People choose to live in more expensive homes. They choose stainless steel appliances, solid wood floors, etc. All things that make the houses of the 70's look quite paltry. Again, the only reason we care in general is if we have to bail this people out because they chose homes they couldn't afford. In the natural order of things (if there is such a thing), if a homeowner couldn't make their mortgage, house goes back to bank. Banks don't want houses (no profit) so they naturally try to avoid people who are likely to stop paying their mortgage. Enter gov't interference, guaranteeing loans, etc and you have a huge distortion. So we(as a nation/gov't) probably should't have gotten involved in the housing market in first place.

bokonist 17y ago
If you break out the numbers further, it's land prices that have been responsible for the housing price increases, not the cost of construction. The main culprits are zoning laws. It's simply not possible to build duplexes or more densely packed homes in most suburbs, and so all the land gets spoken for and no more housing can get built.
- cperciva 17y ago
  The main culprit are zoning laws. I disagree. The Vancouver area is one of the most expensive in the world for detached house (median house price > 10 x median income), but that's not for lack of denser housing options. I don't know anyone under age 40 who has even considered buying a detached house here; the default option is to buy a condo in one of the many towers which are going up, and the expensive "yuppie" option is to get a townhouse. Land is expensive because people want to live close to the city center; not due to excessive zoning restrictions.
  - dantheman 17y ago
    But excessive zoning restrictions exacerbate the problem. In Cambridge, MA there are significant limitations on how high buildings can be thus limiting construction of larger apartment buildings. This in turn drives up the cost of housing due to the lack of supply.

petercooper 17y ago

One reason I've seen cited in many of these new "edutainment" economics books for the rising price of housing is that more people choose to live alone than ever before. If more people live alone and want their "own place", the amount of demand goes up sharply while the supply grows at a more modest rate. Extended families certainly don't seem to be all the rage anymore..

akgerber 17y ago
Extended families get a little more hip now that banks aren't giving out money for nothing any more.

jcromartie 17y ago

The house I am (in the process of) buying is only 2.8x my annual income. It was also built in the 70s. There's a lot more potential in it as it is a more basic structure than a newer house would be.

fab13n 17y ago

House prices also raise because we have more unaffected money: - food represents a smaller and smaller proportion of our expenses; - manufactured goods also became more affordable, as they're produced either by robots or by 3rd world workers; - double-income families have become the norm. Since the housing market is essentially an auction system, with limited offer elasticity, it's natural that it swallows a large chunk of what could have been our disposable money growth. Now, there are other factors, especially in the USA, which will evolve: - the gold rush on estate as a speculative investment undoublty caused a bubble (although it only explains part of the price explosion). This seems now largely over. - by accepting to lend to everyone, banks have artificially increased the number of potential buyers, hence further increasing the prices reached by auctions. Now that those dummy buyers have played and lost with the banks' money, banks will have to acknowledge it as ARM-induced foreclosures unfold, and they'll probably be more careful before letting someone enter the house-buying game. So prices are very likely to go down, but not to go down as low as they were in the '70s, even in terms of income proportion.

jaxc 17y ago

This article has lot of facts and figures and i really apologise for just dropping this like this (late night/early morning) but with the median figures adjusted for inflation from consumer price index, I don't think its quite fair to say that you can just drop numbers and compare them to present day. I didn't see this mentioned but then again my eyes are really tired and maybe missing the point but: $148,800.00 house in 1975 is the equivilant of $595,484.88 in 2008 in buying power Median income of $42,936 in 1975 has buying power of $171,826.20 in 2008. Roles Reversed $245,300.00 house in 2008 in buying power is $61,295.66 house in 1975 $50,303 median income in 2008 is the equivilant of $12,569.73 in 1975 Buying power calculated using the inflation caluclator of http://www.bls.gov/data/inflation_calculator.htm http://www.bls.gov/data/inflation_calculator.htm "The CPI inflation calculator uses the average Consumer Price Index for a given calendar year. This data represents changes in prices of all goods and services purchased for consumption by urban households. This index value has been calculated every year since 1913. For the current year, the latest monthly index value is used." Now maths really isn't my strong point. Actually really bad and I know that there are many of you far far clever than me so I reserve judgement and hope someone can double check for me but i just wanted to mention this because I didn't see it discussed. (edit: i see it mentioned - sorry)

lutorm 17y ago
He states all numbers are inflation adjusted to the same year.
- cjbos 17y ago
  I'm still confused here (Math is not my strong point either). He mentions he adjusts the income figures for inflation to compare 1975 income to 2001. He then mentions he adjusts house prices to inflation to compare 1975 prices to 2008. But what I don't understand is where he gets the 2008 median income figure from (Even adjusted to inflation) as he said he has no income data past 2001. He needs an actual figure before he can adjust right?

lssndrdn 17y ago

Accoring to this article, the income/home price ratio has gone 1950 -> 2.21 1960 -> 2.11 1975 -> 3.15 2008 -> 4.40 With housing bubble and all, it seems that this is part of a long-term trend. Choosing 1975 as the hypothetical standard of where the ratio might return seems completely arbitrary.

jcromartie 17y ago
> Choosing 1975 as the hypothetical standard of where the ratio might return seems completely arbitrary. My guess is that it's based on the notion that wages (for the average person, not for the rich) have been stagnant since about that time.
ubernostrum 17y ago
Anecdotally, the standard advice I've always heard is that you should look for a house priced at around 3x your annual salary, and that you should be able to make a 20% down payment. If it's not possible to find a reasonable house which fits that, then there's a problem somewhere.

Confusion 17y ago

What's missing from this article: a correction for the quality of the housing. That houses are 40% more expensive is hardly surprising when they are also 40% larger.

lutorm 17y ago
Not disputing your basic fact, I just want to point out that size != quality.
- dockd 17y ago
  Yes but when the quality is roughly the same, square footage rules. Look at houses in the same neighborhood (better: same street) with zillow.com. You'll notice that square footage directly relates to price.
  - Dbug 17y ago
    That's because Zillow.com calulates values using square footage! Calculations don't make it so! I won't disagree that square footage plays a very significant role in value, but how significant will vary. Their estimates are interesting to look at, but are subject to error from many sources. A place with bad paint, a cracked/shifting foundation, termites, no central heat and a bad roof doesn't have those things properly accounted for. Also, one nearby property selling unusually high or low for some odd reason with throw off the numbers for the other properties nearby. I saw that with a apartment to condo conversion where the last unit went to a family member of the developer for a much lower price. As the other units sold, local houses were seeing a rise, when that last one sold there was a $30,000 drop. Even actual selling prices aren't too reliable of an indicator now with such a disturbed market. Bankruptcy sales (or panic sales to avoid bankruptcy) certainly can distort values. It'll vary with the market, but I think I'd feel safer testing estimated value against other criteria. The price is a fairly safe one if rental income could cover payments on a 30 yr fixed loan for 90% of the amount (the rest being the down payment). At least that method isn't so easily disturbed by erratic pricing nearby.
bokonist 17y ago

deleted 17y ago

[deleted]

nazgulnarsil 17y ago

as a region becomes denser and zoning laws limit the speed at which the housing market reacts to changes in housing demand you'll see a rise in price vs other goods. this is normal.

mdxch 17y ago

Here's a calculator that I came up with that will "appraise" a house based on inflation normalized Case-Shiller home value data. It also spits out a couple of nice graphs so you can compare against historical values. http://homepricer.appspot.com/ http://homepricer.appspot.com/

AndrewDucker 17y ago

What does that comprise in mortgage terms? Very few people own their home outright - it's the affordability of the mortgage that really matters.

aristus 17y ago
40 years ago my parents purchased a house on a 7-year mortgage. At the time dad and mom were employed as a carpenter and a social worker, respectively. The price was about 3X their yearly income, they put up 30% up front, and they paid off the rest in 5 years. BTW, it was large enough to raise 4 kids and a flock of poultry. Today houses where I live cost 8-15X (!!) my family's yearly income, and the standard mortgage term is 30 years. Part off this is the shift from farm-country Texas to geekville San Francisco, but the other part is that homes are much more expensive compared to incomes than they used to be.