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      05-23-2020, 12:58 PM   #1
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The average american home price has gotten out of hand

This is not a debate on who's right or wrong or what but whatever happened to middle America?

Back in 1970, the median wage was $19K and the average price of a home was $24K. Your run of the mill guy was earning 79% of what an average home cost.

Fast forward to 2020, the median wage is now $55K. That's almost 3x of what people earned back then but the average price of a house is now $150K. That's earning only 37% of what an average home cost. There are 30-45+ years loan now too.

There are plenty of empty spaces across the country. Lots of room to grow. So why are houses over 6X what they used to cost?

Are there over an abundance of $10M homes that skewing the statistics. We're relying more on migrant workers and day labors to build homes now as well.

Is it labor cost? The material cost (are plywood and fiberglass that expensive? ) The land cost? (there are plenty of cheap land out there)
Are modern home so extravagant that it costs 6X more than it used to?

I understand why Europe, Japan and Asia have expensive homes. Land is limited and their population has grown tremendously.

But I look at my local real estate listing in middle America and I still can't believe what the houses are selling for. Even in the not-so-nice part of town, people are getting close to $100K for their homes.
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      05-23-2020, 01:12 PM   #2
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Wages have mostly been stagnant for much of the lower and middle class. And while there are "plenty of empty spaces across the country", the empty space is where no one wants to live for many reasons.
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      05-23-2020, 01:41 PM   #3
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Plus where the higher paying jobs are centered in metropolitan areas. Local officials have not done anything to address the transportation infrastructure in those areas. Take the DC area for instance. Pretty much nothing has been done to fix this issue with the exception of the silver line for the metro in Northern VA. Yet, you have commuters that come in from all areas such as all parts of Maryland, southern Pennsylvania, southern Virginia, and West Virginia. I495, I95, and I270 are total messes around the clock. And when there is an issue on any of those highways, you have a routine 10 to 20 mile backup. None of the politicians have the balls to make the hard decisions for fear of upsetting people that would vote to keep them in office.

So when you have people dealing with now a routine 2 hour commute one way into the office, you have high demand for housing close in to where the jobs are. And the housing is going to get worse as Amazon ramps up in the area. Add to this the fallout from the jobs situation from this virus situation where many of those jobs are probably gone forever, you have people migrating to this area for employment because of the Federal government...Fortune 1 employer.
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      05-23-2020, 02:20 PM   #4
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I don't know the answer, but I can guess. The population of the US has increased by like over 60% since 1970 so I would imagine demand is up considerably. While there may be lots of land out there it doesn't mean anyone wants to live there. After all a great deal on a house in the middle of nowhere is not a great deal if there's no jobs there.
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      05-23-2020, 02:32 PM   #5
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Two words... the internet.

If you look back from an industry & economic standpoint, all the income being generated was from manufacturing, products, retail, and services... and it was pretty stagnant.

And then the internet. Wages in this new business were high because few knew how to do it. And the tech centered around more progressive business areas. If you follow tech, money goes with it... higher standards of living, higher costs of living.

A workforce getting paid higher wages will pay more for a house.
Keep housing inventory and turnover low, price goes up.

I've been in NorCal almost since day one (outside of SF). Believe when I saw, I've watched the walnut orchards become houses become zillion dollar homes.
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      05-23-2020, 03:19 PM   #6
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If you make $55k and need more than 25 xyears to pay off a house, you don't know how to manage your money.

How many places in the world and first world and free and from them how many are affordable? Only USA. The avg price in all of Canada is $504k, In the metro cities it's much higher. Homes in the USA are very affordable. Europe, Australia, are all expensive
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      05-23-2020, 03:23 PM   #7
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Average home size has went up significantly i believe as well.

Last edited by 1MOREMOD; 05-23-2020 at 03:38 PM..
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      05-23-2020, 03:24 PM   #8
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You're high. Our janitor at the office makes 38k a year and has a 2200 sq ft home and 2 cars. Granted we're in Sarasota and not Beverly Hills, but still. A janitor in Beverly Hills would probably make 50.
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      05-23-2020, 03:28 PM   #9
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Low interest rates certainly help boost prices. First home I purchased financed with 14% fixed rate 30 year mortgage which was considered pretty good at the time in 1980. Price of home was $110k, and is now over $800,000.
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      05-23-2020, 03:35 PM   #10
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Quote:
Originally Posted by 1MOREMOD View Post
Average home size has went up significantly o believe as well.
This and keep in mind that the average in today's world is a bit skewed by the much higher prices on the east and west coasts.
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      05-23-2020, 03:36 PM   #11
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This is a question of inflation and the USD losing purchasing power. Which kind of loops back to your observation of "minimum wage tripled but home prices increased more than that". It's not that the home prices are high that's the issue, that's a very surface level overview of the situation. Your purchasing power has decreased because the US Dollar has lost value. I won't get into reasons why because I'm not an economist + there's lots of politics (and personal biases) that go along. But I can go into why homes are "expensive" since I'm a civil engineer.

"are material and labor costs that expensive?"

Yes and no. I strongly think paying $65/hr for an excavator is outrageously high, but it also scales up (as in doctors etc get paid more) so it kinda makes sense. Material per home can be acquired fairly cheaply, saving a few bucks per sq ft even if you change stores. But naturally higher grade stuff is going to cost more. Material however is really not the issue, if anything the "average" has been shifted up considerably.

Keep in mind that's one guy who runs 1 type of excavator to do a specific thing. Since you need multiple pieces of machinery and other operators to run it, an hour of work comes out to $200-250. At least in the suburbs of Chicago. Nothing gets done in an hour and it's not unreasonable to run up to $5-7k a day because of this.

Then you have all sorts of different trades and their bullshit unions that exist solely to be a headache on the general contractor. Add all of those together and you're paying a considerable amount more for the trades than the materials, for a reasonably middle class home.

Then you have the contractor's profit on there. Generally 10-15%. But of course you get plucked for every single penny along the way so realistically that profit ends up being more 30-40%ish.

Lastly, you have the developer that basically is the "idea creator" of the subdivision you're in. They get a cut too, why else would they have a business otherwise?

Homes are expensive because there's lots of inputs that go in it. you can build your own home in an unincorporated area, but that's only putting a bandaid on the issue.

Also, the dollar using value should also be kept in mind when making comparisons like that. $1 in the 70s is worth a $6.61 today. Unless your paycheck increased x6.61 in the last 50 years, your purchasing power has effectively decreased.
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      05-23-2020, 03:40 PM   #12
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Quote:
Originally Posted by mecheng77 View Post
If you make $55k and need more than 25 xyears to pay off a house, you don't know how to manage your money.

How many places in the world and first world and free and from them how many are affordable? Only USA. The avg price in all of Canada is $504k, In the metro cities it's much higher. Homes in the USA are very affordable. Europe, Australia, are all expensive
It all depends where you live. 55k in some states/cities is not crap. But I do agree that 90%+ of people donít know how to manage money. We are a nation of instant gratification so 55k doesnít go a long way when you add a new m3 that someone pays 900+ a month for lol. But hey people gotta flex hard.
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      05-23-2020, 03:41 PM   #13
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My pay increased by almost 3x since 95. Would love to have that continue but doubtful. I wouldn't ever retire if kept climbing.

Last edited by 1MOREMOD; 05-23-2020 at 08:55 PM..
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      05-23-2020, 08:43 PM   #14
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Quote:
Originally Posted by 1MOREMOD View Post
My paybincreade by almost 3x since 95. Would love to have that continue but doubtful. I wouldn't ever retire if kept climbing.
Mine doubled in a few years after moving from Houston to Seattle. Does 3x salary increase over 25 years even cover inflation?
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      05-23-2020, 08:56 PM   #15
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Not sure doing okay but not gonna be retiring anytime soon unfortunately
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      05-24-2020, 03:23 AM   #16
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Quote:
Originally Posted by GenXer View Post
Back in 1970, the median wage was $19K
I think you forgot to divide by two.
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      05-24-2020, 07:35 AM   #17
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Originally Posted by quick6 View Post
Low interest rates certainly help boost prices. First home I purchased financed with 14% fixed rate 30 year mortgage which was considered pretty good at the time in 1980. Price of home was $110k, and is now over $800,000.
14% interest
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      05-24-2020, 08:09 AM   #18
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Originally Posted by eluded View Post
I think you forgot to divide by two.
https://www.russellsage.org/sites/al...20Earnings.pdf
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      05-24-2020, 08:21 AM   #19
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Quote:
Originally Posted by mecheng77 View Post
If you make $55k and need more than 25 xyears to pay off a house, you don't know how to manage your money.

How many places in the world and first world and free and from them how many are affordable? Only USA. The avg price in all of Canada is $504k, In the metro cities it's much higher. Homes in the USA are very affordable. Europe, Australia, are all expensive
Less than 38M people, plenty of land and an average home price is still $504K ? That's just awful.
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      05-24-2020, 09:11 AM   #20
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Quote:
Originally Posted by GenXer View Post
Quote:
Originally Posted by eluded View Post
I think you forgot to divide by two.
https://www.russellsage.org/sites/al...20Earnings.pdf
19k in 1970 does not equate to 1/3 of 55k today. You're forgetting about inflation. 19k in 1970 was the equivalent of ~150k in 2020.
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      05-24-2020, 09:18 AM   #21
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Like everything else today...people want bigger, more expensive, and fancier stuff. Who would have ever though a pickup truck would cost $60k+? Houses are crazy expensive because they are huge. What's the average square footage of a home in 1970 vs now? And don't forgot all the additional wiring and tech that goes into newer homes for data/web access.

Most people are just concerned about keeping up with the Jones's.
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      05-24-2020, 09:22 AM   #22
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Originally Posted by RedScytheM3 View Post
19k in 1970 does not equate to 1/3 of 55k today. You're forgetting about inflation. 19k in 1970 was the equivalent of ~150k in 2020.
Are people getting underpaid now because an average price of a house is $150K today but the median income is $55k

So it's either people are underpaid or the price of today's average home is too high.

1970 $24K home = $158K home in today's money
1970 $19K wage = $125K wage in today's money

Did I just answered my own question?

So home prices are staying the same. We're just getting paid a lot less.

Hmm, maybe it's time for me to ask for a raise.

Last edited by GenXer; 05-24-2020 at 09:36 AM..
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