Posted 3 years ago on Nov. 3, 2013, 3:02 p.m. EST by ThomasKent
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Should an American earning the minimum wage be able to afford to own a home?
The real estate markets (banks) want to see housing prices inflated to pre-2008 levels, which was artificially high to begin with. At this point there is no government agency regulating a limit on housing prices though there is a cap on the size of a federally financed home loan.
The median U.S. household income was $52,029 according to the 2008 Census. The median home price was $172,600. At the height of the bubble it took 473 percent of the median household income to purchase a median priced home. Compare this to 297 percent in 1975. The 2008 number is 331 percent.
The average 3 BR house in New York City is $.4.4 million. The President of the United States cannot afford to buy a 3BR house here on his salary alone. Yet it is within the power of government to change all of that.
"We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America."
Current guideline is that the cost of housing should be less than 40% of total income. This would require the median house prices to drop 30% to1975 levels to fit the median income today. How will that happen?
Usually housing data references statistics after 1970. This is when the U.S. Treasury and Federal Reserve disconnected the dollar from any connection to the gold standard. Consider two other periods of relative good economic times, 1950 and 1960
Median household income: $3,319
Median home price: $7,354
Home price / income = Percent of 221
Median household income: $5,620
Median home price: $11,900
Home price / income = 211 percent
If we use the 1960 ratio home prices today would need to be:
$50,029 x 2.11 = $105,561
A 38.8 percent drop from current levels. The data from 1975 to the current housing peak in the late 2000s shows housing prices going up for nearly 30 years. Many average Americans simply assumed this was the normal trajectory of home prices.
But the 1950 to 1960 example shows that after one decade, relative to income, home prices in 1960 were actually cheaper than they were in 1950. In 1960 the median home price cost about twice the median annual household income. Some can’t even imagine this number and think this would be ruinous for the economy. Nonsense from the banking industry.
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