re: The math for buying a home no longer works, per WSJ

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By a significant margin of 0.27%.

Great point.

Let's do 31 more pages.

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your math aint mathin too well

before COVID was a thing, the last 20 year (2000-2020) delta bw average home price increase and average wage increase was 39% ($163,200 to $329,000 and $14.75/hr to $24/hr)

looks like average home sizes have been decreasing over the last ~10 years

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Over the last 20 years, home prices have averaged 4% annual growth.

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Based on FRED data, Home prices have increased (on average, last 20 years) annually 5.1% where wages have increased annually 3.1% which is a 2% annual delta so 6.4x of your figure of 0.27%

From 2000 - 2020 home prices outpaced wages by 39%

I agree its nuts

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Based on FRED data, Home prices have increased (on average, last 20 years) annually 5.1%

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Everyone is using different data sources and all of them are different. Lol

Nobody is showing their math except me, though.

Ultimately all great data points, but to be as accurate as possible, you'd have to separate wage by age, look up average age of a first time homebuyer and track that way. You might also want to look at average cost of a starter home specifically. Comparing averages across all the segements and population will skew numbers upwards is my guess.

Recent data suggests the average first-time buyer is 36 years old (2022 data). For reference in 1973 it was 30 years old and 32 in 2003.

Avg hourly wage for a 36 year old equals $63k/yr in Q3 of 2023. (so right above $30/hr)

sources:
LINK

LINK /

An article from July '23 suggests that the median starter home price in June was $242,000.

Assuming a 20% downpayment, someone would need to save $50k.

With a $63k salary, take home is about 48k (a little less but I'm rounding up). Take home is $4k a month.

Rent: $1,800
Groceries: $500
Water/Gas/Electric Utilities: $300
Student Loans: $300 (using national average)
Gas: $200 (assuming one tank of gas every week)
Car insurance on your beater: $100
Cell Phone: $75
Internet: $50
Renter's insurance: $30

Total expenses w no "fun" stuff. No cable, no streaming, no coffee, no dining out: $3,360. That leaves $600 a month for savings, incidentals, etc.

This does not account for childcare (average first-time parent is 27.6), doctor's visits, or any discretionary spending. This also assumes no pets. Since very few people live a life without any discretionary income, let’s assume you spend a little bit of your surplus on fun stuff so you don’t unalive yourself from depression. You have a surplus of $200/month and you pray nothing goes wrong because that’ll quickly drain what little you can save

For simplicity's sake, let's assume your spouse stays home to help save on childcare but works a part-time job bringing in an additional $400/month and you can put it all into savings - it would take you 10 years to save up for a downpayment assuming homes do not continue to increase in price.

Want to argue that your spouse should work fulltime? Okay let's do it!

Your spouse works full-time and brings in $2800/month, but now you are paying $1600/month in childcare and need a second car. So let's say you get a cheap car note at $300, another $200 in gas and another $100 in insurance, so they are clearing $600 instead of $400. Now it'll take 6.5 years to save up - again - assuming no increase in purchase price, interest rates, etc. This also assumes no other expense increases in that timeframe ( )

We aren't saying it isn't possible, it's just freaking hard for the Average Joe. Of course for most OT ballers, we can buy a new house every other year.

“Our employees keep getting run over at work!”

I bought my house at 2.50% interest and I was curious about how much that was worth. So I took the difference in what I'd pay monthly under current market rates (7% I think), subtracted my actual payment from that, and treated that as a cash flow, for which I calculated the present value.

It worked out to a little over $100,000. You can't really include "favorably priced debt" on a personal balance sheet, I guess, but it is a little crazy that lucky timing can translate into something with that high of a present value.

Long thread, so maybe this has been covered, but...

Are the median priced homes being bought by medium income households? I'd guess not. Most of the lower income singles/families are renting. So I'd expect home sales are to people above the median income.

I think we'd need to some history of the medium household income of those who bought median priced homes in each year.

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Also, I’ve been saying for years that there are an assload of affordable houses, they’re just in neighborhoods where people don’t want to live. Addressing this issue would bring housing prices down also.

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Let me guess, you own a home in a safe neighborhood? Everyone who says this always puts it off on others. You want to put your family in a non safe area?