trying to make sense of this..

[charby]

Why are house prices so out of touch with wages? This is Ames, Iowa.

Household by Income - Ames "third number is number of households"
 
Under $10,000  2,100
10,000  -  14,999  1,450
15,000  -  24,999 2,927
25,000  -  34,999 2,301
35,000  -  49,999 2,695
50,000  -  74,999 3,207
75,000  -  99,999 1,646
100,000 - 149,999 1,132
150,000 - 199,999 294
200,000 or more  314
Median Household Income  36,042
 
Source: U.S. Bureau of Census
 

2003 Average Sales Price  
Average Sales Price  $168,146
Median Home Price $150,000
Total Housing Units, est.  19,259
Source: Ames City Assessor & Story County Assessor

Also if you check the real estate ads, you can't find anything under $120k and $120 buys you a beat up 1000 square foot house.

Charby

[Shalako]

In Sacramento, CA $350,000 buys you a beat up modular on .12 acres. You may get 1200 sq ft. if you're lucky.

I'm 35 and still renting...maybe next year will show a downturn and I'll buy something. A year ago people were in bidding wars the day the property was listed but now I see places for sale for a month or more. Maybe it will get better for us buyers.

[Jamisjockey]

I don't know what is going on.  We bought our house a year and a half ago for 159,000.  It had been on the market for a year, and the seller gave us 5,000 in concessions.  Now, its market value is between 185 and 202,000.  We still have 700 unfinished sqft to work on this winter, too.  I imagine there will be a market correction soon, but look at Kali...no real market adjustment there in years.

[Paddy]

In the 'good ol days' (talking about the '50s) it only took one person working to feed a family and make a mortgage payment.  Now it takes two people working full time just to continue living indoors.  Around here, even the high dollar professionals can hardly afford housing; they have to buy elsewhere while renting here, earn some appreciation, and eventually trade up if they want to live in this area.   The local cops can't even afford to buy in the towns they work.  It ain't right, but I don't know what's to be done about it.  Home ownership is an important part of the 'American experience', and young people especially have a tough time getting started in some places.  There are creative ways of financing, but you have to be real careful and reasonably certain of your employment and earnings future.

[The Rabbi]

Supply and demand.

[Paddy]

Well, after WWII, the demand for housing couldn't have been higher. Yet it only took one person working to support a family and make a mortgage payment.   Something's outta whack.

[The Rabbi]

Well, after WWII, the demand for housing couldn't have been higher. Yet it only took one person working to support a family and make a mortgage payment.   Something's outta whack.

Yes, that was the case pretty much through the very early 1970s.  I saw a good article on this where the author described how he got a job in CA at $8k a year.  He bought a new Ford for $1500 and when he got to CA he bought a new tract house for $25k.  He points out that with gold at $35 an ounce today's prices are 10 times what they were in 1962.  All except for the $8k starting salary, which is nowhere near $80k.  Its called inflation and what made it bearable was the beginning of the two income family.

[Shalako]

Riley, for anecdotal purposes, my dad bought his place on the hill in Los Osos for ~40k in the 70s on a Safeway clerk's salary. Yeah, we were kinda broke most of the time.

Now he's a soon to retire custodian at Cal Poly with no more house payments, and his place is worth.... uh ...more than 40k.

[Standing Wolf]

Supply and demand.

Actually, it's supply, demand, and government regulation.

The supply and demand part is actually fairly easy to understand. 70% of the population of our nation lives within 100 miles of the Atlantic or Pacific. No, that "70%" isn't a typographic error.

The government regulation part isn't so obvious. Let me give you an example, eh? I'm pitching in to help market and advertise a new shooting range. It's been delayed at least five months by the county's so-called "plan review process," which is to say: over-paid, under-worked bureaucrats who contribute nothing and take forever and a Sunday afternoon to do it. The five-month delay could easily evolve into a seven- or eight- or nine-month delay. Every day's delay costs the owners real money. The county is adding ±$30,000 to the cost of the building for so-called "permit process work." That amount could easily be doubled before all's said and done.

That's in Colorado, where government is lean and mean. In the People's Republic of California, the same building would take at least twice as long to buildif permission to build a shooting range could be got at all, of courseand the cost would be at least double, if not triple. In some parts of the P.R.C., the state with the largest population, the raw quantity of land available for building houses is fixed by government. There is no more available, and won't be in the imaginable future. Taxes severely limit the affordability of both land and houses. Truck and fuel taxes drive up the cost of building materials. Unemployment and worker' compensation insurance rates drive up labor costs.

I bought my house and lot in Colorado for less than the permit costs of a new house in San Mateo, the P.R.C. If I could magically transport my house and lot to the San Francisco Bay area, where I used to live, they'd be worth between five and ten times their value here. Some of that is the demand of greater population; some of that is the governmentally constrained supply of land and housing; some of that is government parasitism in action.

Even without addressing the question of lost civil rights and being surrounded by millions upon millions of illegal aliens, you couldn't pay me to move back there.

[brimic]

Another aspect is taxes.

What percent of a working man's paycheck went to taxes in the 1950's in comparison with today?
How much more is spent on taxes to produce every material that goes into a new house.
Considering the two points above, consider the taxation of the workers salaries that make the building materials and actually build the house as part of the cost of the house as well.

Its tough enough to buy a house now with a 2 income family, I really fear that the next generation will be struggling just to live at what we consider to be poverty level right now. Its not about the haves and have-nots as the politicians like to tell us, its going to become more and more apparant that the government in a monster with an insatiable hunger for money.

[Art Eatman]

The two biggest gouges insofar as taxes are FICA and the combination of state and local taxes.  People talk about income tax, but unless you are well beyond $50K a year, the state/local load is larger than the IRS take.

But, hey, folks, do we really begrudge all those great and wondrous public services we're paying for?    Aren't we happy as little old bugs to be helping those who are "less fortunate"?

Art

[charby]

Well my biggest bitch is that I make more than the medium household income in Ames, not by much. If I would buy a normal house in town over half my take home pay would go to a house payment, then $200-300 a month for ultilities, then a student loan payment. So I am left with less than $200 to make a car payment (don't have one right now but will by spring), insurance, eat and put gas in the vehicle.

Charby

[roo_ster]

The cost of housing and raising a family has gotten out of hand.  I am better educated (or at least better credentialed) than my dad was and make more in inflation-adjusted dollars than when he was the same age.

On his salary, he was able to build a 2000sqft house in 1972 on his warehouse manager's salary for a major corporation.  He was able to support two kids and a wife and owned two used, but less than 3 year old, cars.

I do better than most in this nation (according to median anual income statistics), yet I am struggling to hold it together, at times.  I live in one of the cheapest large housing markets in the nation, yet my house is 1300sqft.  Until last year our two autos were 9 and 7 years old (bought a new vehicle for incoming kiddo: put 75% down & financed 25% for 3 years).  Our debt consists of our mortgage, 1.5 years to go on our car note, and a few hundred dollars periodically (generally paid off in a month or two) on credit cards when expenses hit during lean times.

I think a (the?) major factor is the increase in the size of government and the commensurate taxes.  To maintain a standard of living equal to my folks at that time (new 2000sqft house, two relatiely new autos, etc) I would have to tell my wife to stop raising our kiddo & kick her back into the workforce.  Unless I am disabled, however, that is not going to happen.  We have made the judgement that WE (not strangers or non-family) will raise our kids and are willing to forego material goods to make it happen, though we maintain the right to sound off about it!

[Justin]

People talk about income tax, but unless you are well beyond $50K a year, the state/local load is larger than the IRS take.

That's not been my experience.  Even if you're talking straight income tax, and not including Social Security (sic) withholdings.

[Headless Thompson Gunner]

It's a psychological thing.  Everybody and his brother thinks that real estate prices are heading through the roof.  So everybody buys, either as an investment to sell later, or because they think they won't be able to afford it in the future.  Prices go up.

Market movements depend more upon herd mentality than on objective economic realities.

Mark my words:  Now is right the time to SELL real estate.

[sturmruger]

I am 28 years old and my wife and I are still renting.  We would love to buy the house we are living in.  Our landlord said he would sell it to us for around $160K which is a good deal.   While we can handle the house payment the property taxes are $3500 per year!!!!   I get so mad about the property taxes I sometime think I might just rent forever.

[MaterDei]

sturmruger, when you rent you pay the property taxes, trust me.

I disagree that  both husband and wife have to work because housing prices are too high.  I think just the opposite has occured.  The housing bubble started AFTER wifes and mothers started working.  America has become a nation of Joneses.  Women started entering the workforce in mass, families had more disposable income so they decided they just HAD to have a bigger/nicer house.  They bought new, bigger houses.  Anything less than 1000 square feet per person just won't do.  Supply and demand kicked in and now everybody is saying that you have to have a dual income family to buy a 'decent' house.  It's a vicious cycle.

I have a wife and six kids and we are very satisfied with our 2700 sq ft house.  We have plenty of space and my wife doesn't have to work.  I honestly don't know what the heck all these DINKs do with their 5 bedroom houses.

[Guest]

I disagree that  both husband and wife have to work because housing prices are too high.  I think just the opposite has occured.  The housing bubble started AFTER wifes and mothers started working.

Agreed. You can look back and see the same thing with college tuition. When financial aid and loans became the norm, tuition began to skyrocket because there wasnt as much direct competition over students. When financing became a common practice when buying cars the price of autombiles quickly rose. I think that the long and the short of it is that whenever a desired item becomes easier to pay for, the market corrects itself and places it right back where it was in terms of effort-to-obtain.

[The Rabbi]

I disagree.
Wives began entering the workforce in the 1970s.  Housing prices have increased tremendously just recently as a result of record low interest rates.  My first house had a rate of 10 1/8% on a variable and I thought I done good.  That was 1990.  Housing prices are cyclical, like anything else.  When we see long term interest rates going up we will see housing prices come down.
I do agree that easy student loans and gov't aid have driven costs in college tuition.  Those programs make college essentially free (for a while anyway), driving demand through the roof.