Sunday, November 25, 2012

Housing vs. Wages


Click to enlarge.

If you believe inflation adjusted housing prices will rise over the long-term then you better believe inflation adjusted wages per capita will also rise over the long-term. Call me skeptical.

Women participated more and more in the workforce during this period. That drove real wages per capita higher. They're here. Now what?

Note: I set the y-intercept at zero for this chart's trend line (Zero Wages = Zero House Prices). It helped the trend fit the data much better in my opinion.

Source Data:
St. Louis Fed: Custom Chart

17 comments:

Stagflationary Mark said...

The men's trend isn't looking good either by the way.

Robots! There's a trend we can count on. We need to create sentient robots that value homeownership and yet don't see us as inferior beings standing in their way. How hard can that be? D'oh!

Gallows humor.

Rob Dawg said...

It isn't the income you earn. It is the income you have available to devote to housing. Dataquick has a monthly California average monthly mortgage figure.
It has finally started rising in the last 4-5 months. 3% interest rates back to 8% would translate to a 40% decline in prices having nothing to do with wages.

Mr Slippery said...

Wages can stay low while house prices rise as long the government is funding the risk. FHA, Fannie, Freddie, with the Fed buying all bad paper. It's a neat trick of the fiat credit system. Wage dollars aren't the same as mortgage credit dollars.

TJandTheBear said...

Dawg beat me to it. Any comparison of wages to housing prices has to be normalized for historical mortgage rates.

Someday rates will rise and housing will be crucified.

Troy said...

Not terribly apropos, but I just teased out a hidden trend of the 1990s employment trend . . .

turns out the population of 25-34 yos actually went down between 1990 and 2000!

The population of age 25-34 yos grew 14% in the 1980s, actually fell 8% in the 1990s, grew 5% in the 2000s, and is going to grow 9% this decade, 2% in the 2020s, and 8-9% (per-decade) again in the 2030-2050 period.

That kinda explains the "full employment" thing going on in the late 1990s -- we were running out of people!

Stagflationary Mark said...

Rob Dawg,

It isn't the income you earn. It is the income you have available to devote to housing.

It seemed to me that the most important feature was moving from one person in a household working to two. The allure of low interest rates only works until they aren't (assuming rates ever do go back up of course).

Stagflationary Mark said...

TJandTheBear,

Any comparison of wages to housing prices has to be normalized for historical mortgage rates.

I've done the "what do you want your payments to be" model as well.

May 3, 2009
Housing Price Simulation

I should combine both ideas into one at some point.

Stagflationary Mark said...

Mr Slippery,

It's a neat trick of the fiat credit system.

One would think that the price of a house would be related to the cost to actually build it plus any real value of the land.

I know. Crazy talk.

Troy said...

It seemed to me that the most important feature was moving from one person in a household working to two.

Not only that, but I've heard that ca. 1973 banking regs were changed to underwrite loans based on household income not just the highest individual income.

That was an atomic turbo engine for home prices, yes.

It was only 10 years ago that I realized how comically corrupt land economics had become, sigh.

And things have gotten much worse since then!

Stagflationary Mark said...

Troy,

That's okay. We're doing what we can to eliminate jobs for the 25-34 year olds so that it never happens again. Sigh.

Retail Trade Jobs per Capita

Stagflationary Mark said...

Troy,

As you are no doubt aware, here's the really bad thing about relying on household income.

If either worker loses his/her job, then the payments become unaffordable.

At 10% unemployment, there's a 19% chance that at least one worker out of two has lost a job.

(1-0.1)*(1-0.1) = 81%

dd said...

This is why us oldsters doomed to live to impossibly old age (my mother is 95) understand multi-generational living is upon us and it really sucks.

Stagflationary Mark said...

dd,

Together Again

One of the hottest trends in housing is the revival of multigenerational living.

My mother has a standing offer to come live with us.

It would mean that her house would be sold of course. I somehow doubt that there will be a huge line of future buyers waiting to snap it up.

TJandTheBear said...

If only 2% growth in 25-34 component for 2020's, that means 2% growth in the 2010's for 15-24 component.

Who's going to fight the coming resource wars???

Stagflationary Mark said...

TJandTheBear,

Skynet?

Luke Smith said...

Good illustration of inflation in your scatter plot: a rise of goods faster than purchasing power.

Stagflationary Mark said...

Luke Smith,

I think it is a better illustration of leverage.

Each $1 of real wage increase translated into $10.63 of real home price increase.

Much of it may be the McMansion effect (new homes kept getting bigger as people felt wealthier).

Part of it may be that banks would allow us to borrow much, much more than a year's wages in order to buy a new home.

Just a thought.