
Median Home Prices Compared to Median Income Since the 1960s - Four_Star
http://thesoundingline.com/median-home-prices-work-vs-gold/
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jimmyswimmy
This 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%.

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tcskeptic
I 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.

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francisofascii
This 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/risi...](https://www.npr.org/sections/money/2018/05/15/611386612/rising-
rates-vs-the-housing-market) Here is the relevant paper by Laurie Goodman.
[https://www.urban.org/sites/default/files/publication/92541/...](https://www.urban.org/sites/default/files/publication/92541/the-
impact-of-higher-interest-rates-on-the-mortgage-market.pdf)

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curtis
If 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.

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akie
Google cache
[http://webcache.googleusercontent.com/search?q=cache:NzYN98d...](http://webcache.googleusercontent.com/search?q=cache:NzYN98d7ackJ:thesoundingline.com/median-
home-prices-work-vs-gold/+&cd=1&hl=en&ct=clnk&gl=de)

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cjg
So 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-...](https://www.vox.com/new-money/2017/5/4/15547364/baumol-cost-disease-
explained)

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rayiner
Also median homes have nearly doubled in size.

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bluthru
Yes but there are a lot of variables to consider there. Most homes today are
just drywall, OSB, and carpet when in the past they were lath and plaster,
wood planks, and wood flooring. On the other hand people today also pay for
AC, more plumbing, and better insulation.

Homes built within the past ~40 years also don't last as long as they used to.

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solomatov
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. 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.

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frobozz
That 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).

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conanbatt
I disagree with the conspiranoic interpretation of interest rates. There are
several reasons why land is expensive globally, but if we talk about places
where median income is unable to buy property like SF, Buenos Aires,
Vancouver, we are talking about highly regulated spots, with high productivity
jobs.

~~~
frobozz
Conspiranoic? I'm just pointing out that (as solomatov summarises) that these
things are complicated, and that saying that one simple comparison is wrong,
and another equally simple one is right does not work.

One factor that I suspect solomatov was originally hinting at, is that back in
the 1960s when house prices were low against incomes, interest rates were so
high that the monthly payments, as a proportion of their income, were roughly
the same as they are today. However, that ignores the fact that saving up
$SALARY * 2.4 / 5 for a 20% deposit in 1960, wouldn't have taken as long as
saving up $SALARY * 4.2 / 5 would today. That only considers the US national
medians mentioned in the article. The really unaffordable places are even
worse. The longer you need in order to reach the savings target you originally
set, the more you are affected by house price increases adding even more time
to that period.

As you say, there are several reasons for the unaffordability of home
ownership. My point is they are not all completely independent of each other
and are even influenced by house prices themselves.

None of this is conspiracy, just market behaviour.

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zip1234
Median 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.

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kristopolous
Sure but material science has progressed for cheaper materials, machines have
reduced the required number of people needed... It cuts both ways.

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zip1234
It 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.

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dahart
> 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)?

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rootusrootus
As 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.

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talmand
>> $250K since I bought it in 2012

That is really, really bad.

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brational
How 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.

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maxerickson
Rapidly appreciating housing values are an abject policy failure.

Great for homeowners, shit for everybody else.

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anovikov
Well 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.

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conanbatt
This 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.

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anovikov
House 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.

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conanbatt
But 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?

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ryanworl
As 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.

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SketchySeaBeast
Based upon that older neighbourhoods should lose value as they age and they
lose relative space.

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dsfyu404ed
It 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.

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dalyons
4.5x 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.

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conanbatt
Dont worry, it will go back to that eventually. They both have plenty of land,
im sure that its a momentary phenomena.

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dalyons
It’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)

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conanbatt
Then don't buy at all, and work in selling houses :)

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olfactory
It's not surprising that home prices have gone through the roof, since many
government policies are intended to keep home prices rising.

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seanalltogether
I'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.

