Average home price vs. average income

So I saw one of those birthday gifts where they tell you about what important events that occurred on the day you were born, how much a loaf of bread cost the year you were born, etc. This was for my mother, born in 1945.

It listed both the average income and the average price for a 3 bedroom home in 1945. The income was aroud $4600, and the home just over $4000, IIRC. Now, the price of homes and the average income has gone up, but it doesn’t seem that income is keeping up with real estate prices. The average (family) income is what, maybe $75,000? But the average home is more than $200,000.

So what gives? Are homes really that much more expensive to purchase today, or am I missing something?

No, you’re not missing anything.

Well, then, Mr. Smarty Pants, why are they so much more expensive? :wink:

Because they aren’t making any more land.

It’s worse than that. The median household income in 2005(PDF) was $46,326.

I’ll never understand how people can afford these super expensive homes, (aside from the shady sub-prime lendings) on meager salaries. My house was a shade under $140,000. My wife and I comprise a very average, white collar income. We certainly don’t have tons of spare cash. After the mortgage, two car payments, insurance,property taxes (which for me are pretty high), food, and a little bit for fun (eating out a few times a month, maybe a movie here or there), we don’t have a whole lot left over. Then I see people on HGTV making what we make, or maybe $10,000 a year more, and they’re buying $400,000 houses. How? How can you net $5,000 a month, and afford to spend $3,000 on your mortgage / property taxes? Do you have no furniture? No life? No cars?

I can’t believe the money some people spend on houses especially in places like Florida. I mean a $200,000 home in Florida is pretty average, that same money here buys a pretty damn nice house.
Average $75,000 Haha you’ve got to be kidding!

Well, median and mean (average) are two different things. This article lists the average family income in 2004 as $70,700.

It’s a bit of everything, as usual I suppose.

Mega-McMansions weren’t all the rage then as they are now, somewhat cramped houses were de rigeur then so it’s tough to make comparisons. Official government inflation figures are horribly suspect as well, so that makes it even tougher.

The rule of thumb is two and a half times annual income. I’ve watched, for the past decade or more, people buying homes costing 3-4 even 5 times their income. I’ve thought it was a bit insane and had to end in disaster eventually.
Yeah, $75K is way high, unless maybe you’re thinking about a two income family.

I am, that’s why my OP stressed family income. Merely to point out that in 1945, a single income was roughly the same as the price of a 3 bedroom house, but now a couple’s income is 1/3 the cost of an average house.

But even a tiny, below-average house (in my area) will set you back at least $100,00. A friend of mine spent roughly that on a 2 bedroom house in a less-than-stellar neighoborhood- the house is smaller than my old apartment, and not much bigger than the one (1 bedroom) I’ve got now.

Good point. Was your 1945 reference mean or median? We need to compare apples to apples.

Really, I wonder how singles with middle-class incomes similar to mine seem to lead a luxury-filled life, and claim to have little or no debt. I know people who make about as much as I do, yet they live in $200,000 townhouses, vacation overseas a couple of times every year, own large-screen plasma televisions, and so on. I haven’t been on a vacation in four years, I don’t own a large-screen television, I don’t have debt except for the mortgage, and I’m struggling just to save a few thousand dollars for some remodeling work I want to do.

Mean. Or at least, I assume so, it was listed as average income and average cost.

I think you might get a better picture if you used the mid fifties vs. now. Right after the war was the onset of mass production homebuilding. There were gov’t. incentives for G.I.'s and a big marriage boom. By the fifties things had settled out and would provide a more equal basis for comparison.
In 1952 my parents bought a brand new 7 room house, although considerable smaller than today’s houses, for about $14K. At the time he was making right at $6K a year and my mom was a housewife, although she had worked full time during the war.

I can think of a couple reasons:
Inheritance. Maybe their parents died and left them some money. If they had a house, some savings, and a nice car it could easily be a few hundred thousand dropped in their kid’s lap.

No retirement savings. They are ignoring that and spending every penny they earn. I’m saving for my retirement, but could easily afford vacations and big-screen TVs if I forgot about it and just spent that money instead.

Or, they are lying about the no debt part :smiley:

Every time I get a raise, I add whatever increased pay I have into a deferred compensation account, on top of the normal retirement fund. Relative to the rate of inflation, my take-home pay has declined quite a bit because of retirement savings.

This is what I was going to post, I have some fairly well to do grandparents still alive, in theory I stand to inherit somewhere in the $300K-$500K range when they pass on. That could make for either a nice investment income boost of $20-30K/year and or pay off alot of bills so I am never paying interest on anything.

There are a few people I have met who never finance ANYTHING. They do without until they have the cash in hand, they seemed to do pretty well for themselves. I know my wife and I are paying out about $700 a month in interest on car loans, credit cards, etc. Not an insignificant sum and could make a pretty big difference in lifestyle esp WRT durable goods like furniture or nice TV’s

You’re right. We should also keep in mind that the median is more appropriate than the mean for talking about large numbers of households since the mean is easily swayed by outliers - like the very few Bill Gateses out there making $10 billion a year pushing the mean up out away from the large body of the population.

Apparently so. The median household income in 1945 was $2,379 (PDF).