Tuesday, August 12, 2008

Not Everyone Minds Housing Prices Dropping!

Looking through some economic data, I came across what I thought was a very interesting graph (which you’ll see below). It shows that, while housing prices were on a torrid pace through much of the last decade, the percent of income that households are spending on housing is only barely above average since the data set began in 1975.

Because of the housing spike, I expected to see a much higher peak toward the end of this graph, as wages have in no meaningful way kept up with the intense uphill climb of housing prices (and thus, housing would make up a larger portion of household expenses). Why is this? I can think of a few reasons – 1. People couldn’t afford the homes in the first place. Once the introductory rates (i.e. ARMs or Interest-only loans) jumped, they bailed (while leaving the recorded sale price of the home at a record high). 2. More families are relying on dual-incomes. This, naturally, raises the median household income, even though the family is putting in many more hours to be able to afford that same house (instead of 40 hours per week, now it’s 80). My wife and I would like to be able to have one of us at home when we have young kids. But more and more people that we know have found that to be practically impossible.

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