Compared to incomes, housing prices are outrageous. I realize that's a popular sentiment but feeling don't help much when trying to understand what's really going on out there.
Expat-Panama has already crunched the numbers and made the comparison. Given that our homes and incomes are larger today, it's clear that homes are more affordable now than they were in 1978.
Originally posted with back up here.
Even the libs at the NY Times had to report the truth on this issue.
Twenty Years Later, Buying a House Is Less of a Bite
From the article:
"Despite a widespread sense that real estate has never been more expensive, families in the vast majority of the country can still buy a house for a smaller share of their income than they could have a generation ago. Nationwide, a family earning the median income - the exact middle of all incomes - would have to spend 22 percent of its pretax pay this year on mortgage payments to buy the median-priced house, according to an analysis by Moody's Economy.com, a research company.
The share has increased since 1998, when it hit a low of 17 percent before house prices began rising sharply in many places. Although the overall level has reached its highest point since 1989, it remains well below the levels of the early 1980's, when it topped 30 percent."
They are only affordable through exotic, interest only loans.
More feelings. The fact is that 80% of all mortgages are fixed rate mortgages.
Property appreciation of 30% per year is not an indication of low cost of housing.
Where did anyone make that claim?
It has gotten to the point where people can't move.
Nobody's moving?
If they move, their wages haven't kept up with rising house prices so they can't afford a new place, even with the equity they have in their current home
So, if I keep my same job and move from my expensive house in Florida to a small town in South Carolina I won't be able to afford another home and my wages will drop?
Of you are a 1st time buyer, you will have a very hard time.
Is that why home ownership is at an all time high?
That's net worth on paper only and has home equity as the biggest driver.
Oh, really? Have you ever seen the Fed's Flow of Funds report? If you had you'd know that homeowner equity only accounts for about 21% of our total household net worth. We own a lot of liquid assets.
Flow of Funds (page 110)
Increasing home values is not a wealth producing industry.
All that demand for housing hasn't created any wealth? All that money I made owning builder stocks from 2001-2005 was imaginary? The equity I banked when I sold a home in 2003 didn't really help me accumulate wealth?
Manufacturing and adding value to products is where wealth is created.
The service industry creates no wealth? Do you have a source you can link us to that proves this bizarre claim?
I don't care what your government pushed statistics say. All I know is that my wife's brother's mother bought a home for $200K using a option ARM at 1%. The loan reset and her payment increased $12,000 per month, and she can't sell becuase her loan balance is now $2 million but her house is now only worth $50K and she's going to lose her job at Macy's because Wal-Mart came to town and hired a bunch of illegal's and undercut prices by only buying chinese products plus gas prices are so high that she can't drive to any job interviews. The Republican's are going to pay this November.
Do I really need to add a sarcasm tag?
Thanks for adding some facts to the emotional drivel spouted too often on FR.
Hi Mase,
You NYT chart is so oversimplified as to be meaningless. Post #102 by remember is a better analysis of wages. Your chart cites 'income.' What's this 'income' and how as it calculated? Simple averages are basically rubbish because, with respect to wages, are a very skewed number. And what is this source of income? Is it strictly wages, the basis of this thread? Or is it total compensation paid by employers? Total compensation has risen, especially with the employer contributions to health care for many companies, but total compensation is not representative of real, take home wages. What people see is the bottom line on their paychecks. If that number is going up slower than inlfation, then people re being paid less. The total compensation number is a bogus game played by some employers. I was once offered a job for $30K and the HR guy tried to spin it like it was $45K because of benefits. I told him either my salary was really $45K or it wasn't and I turned it down. I didn't want to work for such a blatant spin-meister.
Remember's post is a better reflection of reality because it at least has mean and median wages while your chart has this loose 'income' value. Simpley listing even an average value is skewed because one high income earner weighs more heavily in the calculation than typical income earners. The best way to show the data would be to show a histogram with income levels vs number of income earners and plot that against time. It would be a 3D plot, but it would tell the whole story. And don't get me started on the lack of geographic breakdown, too. National averages are even worse measures of income. Until I see somethings like those, remember's post is a far, far more accurate portrayal of what's really going on. The statistics in the NYT piece is basically garbage.
And good for you that you made money in real estate stocks. To bad a good chunk of the population doesn't have money to invest in the stock market. I looked at your lint to the Flow of Fund info and, again, it's very misleading. It is simple, raw numbers that do not reflect what's really going on. It's simple totals. It says that there's about $20 trillion in houshold real estate and almost $40 trillion in financial assets. That is not distributed evenly in the population. For example, someone like Donald Trump will have a disproportionate share of financial assests and real estate compared to the average person. But there are lots and lots of people without real estate and who's only investment would be a 401(k), which is money they need for retirement, not something they can readily use today.
And what wealth is created by the service sector? It's not producing anything. I'm not devaluing it's role in the economy. There is a defininte transfer of wealth into the service sector, but unless some type of value is added, it is not creating new wealth. It is merely exploiting wealth that already exists. Manufacturing is one way of creating wealth. Natural resources is another. Adding value to a product is a third. And, as others have cited, software is a value added product and helps to create wealth.
And when you refer to home ownership at an all time high, what do you mean? Total number of homeowners? Sure that's gone up. There are more simgle parent and single people buying homes, so it not directly with past numbers. Comprehensive information would include a breakdown of type of houshold as well as the proportion of each type of household with respect to population. Simple, raw numbers are the best way to be misleading without lying.