
The median US house is now 4.9x median income, vs 3.5x in 1975 - pg
http://www.oftwominds.com/blogfeb10/high-cost-housing02-10.html
======
pragmatic
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.

~~~
old-gregg
_People choose to live in more expensive homes_

I didn't _choose_ anything for my rent to skyrocket because suddenly I live in
a million dollar 1-br.

Everybody _has_ to live somewhere. And by speculatively inflating the cost of
housing (and getting out of it before the burst) a speculator effectively
strips general public of their cash.

You don't have a choice: unless you live on the street, you're participating
in this game and you're getting screwed even if you rent.

Imagine this: assume I have many billions of hypothetical dollars to play
with. I go and buy a lot of houses and rent them out. Then I start giving out
loans with 50yr/0% APR to _everybody_. Guess what happens to the houses I
already own? Their value will skyrocket. So I can sell my loans to the next
guy (who's hoping to re-sell them as well, since prices are going up) and I
sell my expensive real estate too. When everything goes to hell, _everybody_
will be poorer but me, including poor souls who's been paying insane rents and
refused to invest in the bubble.

So yes, we have a problem because the system allows this to happen.

~~~
cookiecaper
We have a problem because _we_ allow this to happen. The system doesn't exist
as an independent entity. The system, however constituted, is a reflection
upon those upon whom it operates. We choose what we allow to fly, and our
generations are stuck with the responsibility, however you slice it.

For instance, people could look at a 50yr/0% loan and say, "There's no way I
am going to wager on something for 50 years, that is crazy, also 0% APR means
a tricky, tricky bank". Instead, we eat that kind of stuff up, because all we
think about is getting what we want and getting it now. People are too excited
to think ahead.

Same goes for government. You can wax on about corruption in politics all the
day long, but as long as you're propping up the same institutions by electing
the same incumbents or their alter-egos in the two main parties or patronizing
major media corporations, you're a part of the cause. If the people were
unwilling to accept corruption, there wouldn't be any.

The solution is to change the system by the individual action and perspective
that will diminish the entrenched badness, and to spread these philosophies
among friends. Alteration by artifice as government intervention is not
effective -- whatever laws you pass, the same practices will resurface in new
robes because the population can still be exploited. The population will
remain exploitable until they change their conceptions and actions, no matter
what you do with the government.

The reaction to the housing crisis is a dog and pony show meant to appease
populist fervor without causing significant disruption in "business as usual"
for either the consumer or its providers.

It has done no good, and it could not have done any good. We need an
ideological shift, not band-aids, talking points, or press releases.

~~~
old-gregg
_The solution is to change the system by the individual action and perspective
that will diminish the entrenched badness, and to spread these philosophies
among friends._

So you're suggesting to combat crime with spreading proper philosophies among
friends? Good luck with that. What do you think will happen if rape or theft
was legalized tomorrow?

~~~
cookiecaper
Of course. Is law more than canonized moral philosophy?

I don't think rape or theft would be legalized tomorrow, because I don't think
the people would accept rapists or thieves among them publicly. If the state
refused to act upon its mandate to enforce the canonized moral code of the
people (read: the law), the people would enforce it themselves and install a
new state that provided the services desired.

The law and other social constructs reflect their society, not the opposite.
That's my whole point.

------
fab13n
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.

------
cperciva
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
Small apartments in a large city often cost more than a house in the suburbs.

<http://www.condo.com/ForSale/United-States/Virginia/22202>

vs

<http://www.homes-for-sale-by-owner.info/5223.htm>

~~~
MrFoof
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
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.

------
jaxc
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>

"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
He states all numbers are inflation adjusted to the same year.

~~~
cjbos
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?

------
jcromartie
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.

------
petercooper
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
Extended families get a little more hip now that banks aren't giving out money
for nothing any more.

------
lssndrdn
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
> 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.

------
mdxch
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/>

------
AndrewDucker
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
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.

------
cjbos
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.

~~~
jcromartie
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
> "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)

------
nazgulnarsil
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.

------
Confusion
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.

~~~
gills
Doesn't matter when you're talking about sustainable debt-to-income ratios.
Can't afford it == Can't afford it, no matter the quality.

~~~
mos1
It matters, because if you're spending more time in your house, you're likely
spending less money _outside_ your house.

A fancy kitchen might correlate to fewer restaurant meals and less prepared
food purchases.

A media room might correlate to less money spent on theater or movie tickets.

Sure, there needs to be a budget, but your post denies that household spending
can be reallocated from one column to another.

~~~
gills
I have yet to meet an individual who has, in the last 10 years, both remodeled
a kitchen _and_ adopted an austere entertainment budget (in which I include
restaurants and movies).

~~~
mos1
Hi, my name is mos1 :-)

I doubt anybody would claim my entertainment budget is "austere", but it is
substantially reduced from what it was when we lived in a smaller place. We
almost completely stopped ordering out on weekdays, and we eat out about half
as much as we used to on weekends.

We went from buying everything, to buying only things we don't know how to
cook, or that are a pain to cook.

