While I agree that housing prices have increased far more than incomes in the US over the past few years, I have to point out a few things. First, the graph in Joe's post display only shows the increase in housing prices in the US from 1995 to 2005 which was hardly a typical ten year span in the housing market. The graph on the left shows housing prices in the US in inflation adjusted value with 1890 set to 100. As you can see, the increase in home prices over the past decade is a clear anomaly from historical behavior where home prices have stayed roughly constant, adjusting for inflation. For more on the so-called "housing bubble", click here.The second thing that made me scratch my head was the value of $23,535 as the average income of a US household with one income. I have been unable to find a verifiable number to refute this claim, but there are two reason I find it hard to swallow. First, if you look at the webpage Joe cited, the figure of $23,535 is the average household income divided by the number of people over the age of 14 that work in an average household. I have to believe that there are an awful lot of teenagers and college students who throw that number off. Beyond that, I found this graphic based of census data that shows some relevant information (sorry it's so small):
What I'd like to highlight is the "Education and Personal Income" section. As you can see, the average high school graduate is making only $26,505 - not nearly enough to buy an average house in the US. Someone with some college doesn't far much better - less than a $5000 a year raise. But a bachelor's degree will get you, on average a $12k a year raise from "some college" and put you comfortably in the range of people who can afford a little slice of the American dream. I'm not trying to argue the point that we live in a time when it's hard to own a home - it is, especially on one income. As the first graph showed, inflation-adjusted housing prices are much higher now than any time in the past 115 years. What that says to me, however, is that we live in a world in which a high school education just doesn't cut it anymore. And while I imagine that I am preaching to the choir here, the point that I'd like to make is that it's the American dream, unless you're stupid enough not to get an education.
Actually Nick, your graph looks like another I have seen lately. A nice spike upward at the end.
ReplyDeleteThis proves global warming is the cause of inflating house prices.
On a more serious note Nick is right about a few things for sure:
1. We are on a housing bubble.
2. My numbers may not have been the perfect ones to use. (I'm not sure what is the best number for the average one person income.)
3. Get and education.
However, I would like to know if the bubble will really end. I'm sure it will but I wonder in what way.
Actually, Nick's number is better. I concede.
ReplyDeleteHere's a thought. On producing these graphs they always mention that they have been adjusted for inflation. I have never taken an economics class so I don't know if they go over this, but there are something like 6 different ways to calculate inflation. And when they (the ones who made the graph) calculated their inflation did they include the fact that there are new products on the market that are "necessities" that add another dimension to inflation. So for example, inflation can include comparing the price of wheat in 1890 to the price of wheat in 2007 and you can calculate inflation that way. But then the extra dimension that I mentioned included the fact that there are more items to buy, such as a car, a computer a cell phone, cell phone service, air conditioning units, digital watches, fluorescent light bulbs and other items that did not exist in 1890. So with extra items for us to buy that become "necessities" (like lawn mowers) inflation can grow in more ways than the traditional linear manner.
ReplyDeleteWith the advent of the internet in the 90's there are now more wigits (fundamental economic units) for us to buy. Some models of inflation account for the extra dimensions of the increase of monetary expenditures, but some of them may be failing or breaking down due to the extreme number of new wigits available for our consumption and purchase.
Just some things to think about when looking at data of this type.