5 ms·
US median household income is about $60k, which is stagnant for about 15 years despite GDP growth [1]. The median listed housing price has increased by ~50% for
by nemonemo 7y ago
US median household income is about $60k, which is stagnant for about 15 years despite GDP growth [1]. The median listed housing price has increased by ~50% for the same time[2]. What could a good financial management education teach with these trends in mind?
For a newly-minted median-income household, what is a good financial decision between buying a house or renting? Buying a house with much debt and mortgage payment is risky (remember 2008?) but maybe it is a good investment until that time. Or, not buying a house and continue to pay the rent and helping someone else paying their mortgage may be the safest bet. In either case, there seems growing housing cost anyways that no financial education could help.
Maybe moving to an area where no job exists but house or rent is cheap could be an alternative that no education suggests?
IMO, financial education without considering external environment is easy. It's always like, save more and keep some cash for the risk. But what it doesn't tell people is that the risk is getting higher for the same return and more and more people deplete their income paying the premium.
[1] https://en.wikipedia.org/wiki/Household_income_in_the_United_States https://en.wikipedia.org/wiki/Household_income_in_the_United...
[2] https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS
- WillPostForFood 7y agoI wouldn't say US median income is stagnant, more like volatile. It climbed from 50k to 60k between 1985 and 2008, collapsed back to 55k during the recession and slow recovery in 2012, then climbed back to an all time high of 61k by 2017. But that actually supports your point: it is very difficult to predict a "safe" time to take on debt.
- pault 7y agoIs that adjusted for inflation?
- telotortium 7y agoIt's real income, so yes.
- sokoloff 7y ago“Real” income is adjusted for inflation (by definition). The contra would be nominal income (or typically unqualified is also nominal).
- rayiner 7y agoThere are two problems with your analysis: 1) You’re comparing inflation adjusted income figures to housing prices that are not inflation adjusted. 2) You’re ignoring interest rates. Low interest rates allow people to buy more expensive houses without paying any more money per month. Mortgage payments as a percentage of income have been quite flat across all income levels over the past 15 years: http://www.pewtrusts.org/-/media/data-visualizations/infographics/2016/fig_6_expen.png?la=en&hash=965CE79B5E401B237FB45675E1220F73E03858A5 http://www.pewtrusts.org/-/media/data-visualizations/infogra...
- mikeash 7y agoAm I reading that chart right that the average person with a mortgage pays around 15% of their income for housing? That seems implausibly low.
- sokoloff 7y agoIt might be a hair more than 15% by eyeball, but remember that’s going to include in the average a lot of people who are paying property taxes only or who bought a place 15-20+ years ago and whose PIT payments are much lower than their current income would suggest they could qualify for. I bought in 2007 and my percent of income spent on housing would now fall in-line with the charted figures.
- evancox100 7y agoDo you live in Silicon Valley? That might skew your perception a bit. Median income is around $60k, and median house price is $220k. With a couple assumptions that comes out to around 20%
- std_throwaway 7y agoMy financial advisor says that poor people should start buying more houses so they can keep up with rising prices.
- sokoloff 7y agoThis comment makes the classic mistake of citing flat real (inflation adjusted) income and increasing nominal (so not inflation adjusted) housing prices. If you take the Q1 2019 vs 2004 median house prices, they are 44.6% higher 15 years later. Said differently, the median house price has gone up by 2.5% annually. Basically by inflation.