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Median Home Prices Compared to Median Income Since the 1960s
- akie 8y agoGoogle cache http://webcache.googleusercontent.com/search?q=cache:NzYN98d7ackJ:thesoundingline.com/median-home-prices-work-vs-gold/+&cd=1&hl=en&ct=clnk&gl=de http://webcache.googleusercontent.com/search?q=cache:NzYN98d...
- rootusrootus 8y agoAs a homeowner I do like the routine appreciation in the value of my house (up $250K since I bought it in 2012) but I wonder when the other shoe will drop. I suppose to a large extent how this plays out will vary quite a bit by region, but it seems inevitable that there will be some form of correction in the future.
- debacle 8y agoThe "other shoe" is that your children (if any) will have to move away to buy homes in the future.
- talmand 8y agoOr live in their parent's home with their spouse and children.
- koolba 8y agoThat doesn't sound bad at all.
- jeffreyrogers 8y agoIn some countries you just build another floor each time more family moves in.
- talmand 8y ago>> $250K since I bought it in 2012 That is really, really bad.
- tclancy 8y agoWhat if it's a hundred million dollar palace?
- brational 8y agoHow do you figure? You have no idea what the initial home cost is. 250k on a 1.5 MM home.. yea sure maybe that's whatever. 250k on a 400k home is insanely good.
- maxerickson 8y agoRapidly appreciating housing values are an abject policy failure. Great for homeowners, shit for everybody else.
- abainbridge 8y agoIs that increase greater or smaller than investing in an S&P 500 tracker would have been? That's gone up 2.1x since mid 2012. I live in the Cambridge, UK. Since 2012 it feels like very many things doubled in price: houses, FTSE shares, food, classic cars, software engineer wages. I guess what really happened is someone printed a lot of money and a pound sterling is worth about 60% as much as it was before.
- frobozz 8y agoIn a sense, the other shoe may already be on the floor. The value of something you don't want to buy or sell is essentially irrelevant to you. However, because the percentage increase applies broadly (though not uniformly) across the range of homes in your area, it is harder to upgrade (this may hit you from both sides, the house you want is getting further out of reach, and your house is getting further out of reach for the prospective buyers of your current house). If you are already in the house you want to stay in until you leave feet-first, then the change in value is irrelevant. If you are in an area with rocketing prices, and you want to move somewhere more stable, then you are on to a winner as long as the situation continues. If you are in an area with rising prices and you want to upgrade within the same neighbourhood, then if the situation continues, you will eventually find yourself stuck.
- deleted 8y ago[deleted]
- rootusrootus 8y agoCan you explain a little how the banks are doing this? By making it too easy for people to make poor financial choices? Or something more nefarious?
- deleted 8y ago[deleted]
- dfsddfas 8y agoBy knowing the taxpayer has to bail them out of really big mistakes: While the going is good, bonus are had for an upper crust of society. When going is bad, normal ppl loose their pensions.... and bonus are distributed anyways to congratulate the upper crust of successfully lobbying for a bail out. The net effect? The upper crust got relatively wealthier than the poor. The above is technically not criminal. But then there is insider trading, interest rate fixing, falsely signing up ppl for services. Do you live under a rock?
- rootusrootus 8y agoThe criminal stuff we should definitely try to fix, sure. And I agree that "too big to fail" should really translate to "immediately needs to be broken up into pieces small enough to fail" but other than that your critique is pretty vague.
- bluthru 8y agoWhen a mortgage is secured the bank isn't using its money to pay for the house. Instead, it creates the debt out of nowhere and charges you interest for money that isn't at risk. Maybe someone with more knowledge than me can explain why banks shouldn't have to buy all of their money from the government like they do with physical currency.
- rootusrootus 8y ago
- zip1234 8y agoMedian home price does not necessarily mean that houses are appreciating. People could be building larger, more expensive houses. Building codes may also add cost to a house. Homes didn't used to have to have smoke detectors all linked together, be grounded properly, have waterproofing, etc.
- ctrl-j 8y ago1. It's unlikely the effect on price of what you are describing would have the impact that is being shown. 2. Regardless of that fact, the area between the curves is the troubling part.
- kristopolous 8y agoSure but material science has progressed for cheaper materials, machines have reduced the required number of people needed... It cuts both ways.
- zip1234 8y agoIt looks like you are right about that--looking around, it appears that inflation adjusted price per square foot has remained relatively stable. However, a larger home with price/sq ft remaining the same results in a higher price.
- ryanworl 8y agoAs is mentioned in the comments of the article itself, this initial analysis ignores the fact that the median square footage has also increased dramatically during the same time period.
- maxerickson 8y agoOf housing or of new housing?
- SketchySeaBeast 8y agoBased upon that older neighbourhoods should lose value as they age and they lose relative space.
- dahart 8y ago> We can see from the second chart that a median family home has been getting less and less affordable for the ‘median family.’ Whereas the median family could earn enough to purchase a home in just 2.4 years of work in 1970 (assuming 100% of their income went towards the home), it took the same median family over 4.3 years to buy a home in 2016, nearly twice the time and work. This struck me as a slightly strange way to frame it, since the median buyer probably still has a standard 30 year loan. The ratio going up doesn’t mean it’s taking longer to buy, it means that people are no longer using the 1/3rd rule of thumb - buy something that takes no more than 1/3rd of your paycheck to pay down. We definitely might be over leveraged as they suggest, but could this also be a change in the buying habits with the remainer of the paycheck? I.e., the other 2/3rds or one half... maybe on average the median buyer is on average buying small things like iPads rather than bigger things like boats or college tuition? Maybe the average median buyer is just saving less for the future, but believes that putting the money into their house is a form of saving (which is often true)?
- cjg 8y agoSo the ratio of median home prices to median family income has moved from about 3 to about 4.5 over the last 50 years. This is because the many manufactured things have dropped in price over that period of time. This has meant that families have more money available to spend on things that are not manufactured. Land is the epitome of something that cannot be manufactured, so goes up in value. Here's an article on Baumol's cost disease which explains this: https://www.vox.com/new-money/2017/5/4/15547364/baumol-cost-disease-explained https://www.vox.com/new-money/2017/5/4/15547364/baumol-cost-...
- meritt 8y ago> Land is the epitome of something that cannot be manufactured, so goes up in value. Lot sizes have gotten significantly smaller over the past 50 years. The difference is probably closer to 3 vs 20 if you include the amount of land purchased. There's $800,000 homes in my neighborhood on 4,000 sqft lots.
- rubidium 8y agoHave any data on this? I'm skeptical.
- meritt 8y agoZillow has published some work on it -- https://www.zillow.com/blog/bigger-homes-smaller-lots-184558/ https://www.zillow.com/blog/bigger-homes-smaller-lots-184558... but it doesn't go back very far. -10% since 2000.
- ams6110 8y agoI agree. Where I live there are two types of homes being built: Dense condo developments, or huge houses on large lots (1 acre+). Nobody is building the 1950s/1960s subdivision style 3-bedroom ranch on a quarter acre lot, and I don't really see many larger homes on small lots. Anecdotal to be sure, however.
- deleted 8y ago[deleted]
- solomatov 8y agoComparing home price to income is incorrect. The unit of measure of home price is dollars. The unit of measure of income is dollars per year. You should compare home payment, be it a rent, mortgage + maintenance costs to income per unit of time. Home price highly depends on interest rates which vary a lot. Currently we have an ending low interest rate period and when rates will go up, situation might change.
- solomatov 8y agoIf you want to see how it all works, see the chart for mortgage rates: http://www.fedprimerate.com/mortgage_rates_chart-graph.htm http://www.fedprimerate.com/mortgage_rates_chart-graph.htm It was going down for almost the whole period discussed.
- deleted 8y ago[deleted]
- masklinn 8y ago> Comparing home price to income is incorrect. The unit of measure of home price is dollars. The unit of measure of income is dollars per year. That doesn't make the comparison incorrect, it just means that the result is a "work time" rather than a unitless factor. And you can compare differences/changes in "work time" just as you can compare differences in unitless factors.
- solomatov 8y agoIMO, from the article linked the author doesn't consider the result of the division as time. He uses the term ratio.
- ams6110 8y agoAlso consider that the standard down payment required on a mortgage used to be 20%. That limited what you could buy.
- frobozz 8y agoThat is true, but it is slightly more complicated. When lenders were routinely offering 100% (or even higher) LTV mortgages, the relationship is as simple as you describe. Homeowners and renters alike pay out a portion of their income each month for the roof over their heads. When lenders require a significant percentage as a down payment, then the rate of change of house prices and the rate of change of salaries are directly linked as well as via the monthly cost of a mortgage. If prices are rising faster than you can save up a deposit and incomes are stagnant, then it doesn't matter if interest rates are falling enough to keep the monthly payments stable, you still won't be able to buy. Bear in mind that that scenario is a Landlord's dream, they can charge higher rents because everyone needs somewhere to live, which in turn prices more renters out of the homebuying market, whilst not deterring wealthy flippers. The regular payment on a mortgage varies even more greatly depending on some of the decisions you take when you get the mortgage than the underlying interest rate. (e.g. rate of the mortgage, fix/discount/tracker/offset, length of initial term, length of total term, upfront fees, size of the deposit).
- seanalltogether 8y agoI'd be curious to see how this relates to the increased urbanization of our culture. It would make sense for property value to rise if more and more people are trying ot fit into a fixed amount of city space.
- jimmyswimmy 8y agoThis seemed highly unpleasant but ignores the effect of falling interest rates over much of the study period. I put together a plot using FRED data to show the cost of monthly housing (assuming a US-style 30 year mortgage) as well as its annual cost as a percent of median US household income. https://imgur.com/a/0F20SGF https://imgur.com/a/0F20SGF It could be better - I'm quite envious of those who owned a home in the 1970's - but clearly there has been some secular change in US expectations of housing costs as a percent of income. There is an upward trend but nowhere near as dramatic as this post tries to show. In 1980 housing represented 21% of income, in 2016 it was 24%.
- tcskeptic 8y agoI think that is correct. While most people buy a house -- they budget to a payment. The last time we moved our realtor even tried to engage us in this direction. It is very similar to the way car dealers explicitly work -- "What do you want to spend a month?" If interest rates rise dramatically, average home price will necessarily fall.
- francisofascii 8y agoThis recent Indicator podcast discussed this. Surprisingly, historical data does not support the notion that rising interest rates leads to lower housing prices. But maybe this time will be different. https://www.npr.org/sections/money/2018/05/15/611386612/rising-rates-vs-the-housing-market https://www.npr.org/sections/money/2018/05/15/611386612/risi... Here is the relevant paper by Laurie Goodman. https://www.urban.org/sites/default/files/publication/92541/the-impact-of-higher-interest-rates-on-the-mortgage-market.pdf https://www.urban.org/sites/default/files/publication/92541/...
- curtis 8y agoIf interest rates rise and then fall again over a relatively short term (several years or longer in the case of real estate) then housing prices might not fall much because owners will pull property off the market and wait for it to improve. The reduced supply (possibly greatly reduced) will tend to drive prices higher even as interest rates are driving them lower.
- anovikov 8y agoWell isn't it normal? Food has become cheaper since these days. Stuff has become massively, incomparably cheaper. Travel has become cheaper. And Americans had enough of all these in 1950: it was a rich country already, very few went hungry or unable to buy clothes or household stuff, so as prices fell, possibility of increase of demand were limited, these markets, except travel, were already saturated. So a lot of money released by these things getting cheaper had to be spent somewhere, and eventually it was spent on things which aren't so prone to technology-driven deflation, mainly real estate.
- conanbatt 8y agoThis would make sense if the housing were of higher quality than it used to be. I think the same house dated 50 years ago might be worth more of a median price today, even though its the same but older house.
- anovikov 8y agoHouse built 50 years ago is firstly, about half as big as today. Personal living space more than tripled in 100 years and more than doubled in 50 years.
- conanbatt 8y agoBut what is the price change of that same house? If the house of old is worth more today, its higher value for the same unit of space (and also stock decay). Are old houses cheaper or more expensive today, taking into account house depreciation?
- olfactory 8y agoIt's not surprising that home prices have gone through the roof, since many government policies are intended to keep home prices rising.
- dalyons 8y ago4.5x would be a dream for Australians - Sydney and Melbourne are currently at 13x & 10.5x respectivly. Those two cities cover close to half the Australian population. Insanity.
- conanbatt 8y agoDont worry, it will go back to that eventually. They both have plenty of land, im sure that its a momentary phenomena.
- dalyons 8y agoIt’s been about 25 years so far, with no real downwards correction. Definitely a major bubble, but ive given up trying to guess when it will burst. Everyone acts like it will go on forever, but that would mean >$50mil median homes in another 20 years which is surely impossible (but what do I know)
- conanbatt 8y agoThen don't buy at all, and work in selling houses :)
- dsfyu404ed 8y agoIt would be really cool to see the median home price to family income plotted as a topographical map. Not that we don't all expect it but you'd basically get mountain ranges on the coasts. The really interesting thing would be to look at it over time and see when and how fast the "mountain ranges" develop. Obviously the trend it generally upward but it would be interesting to see when and how fast prices increase in various locales and see if that correlates with anything else.