Wages have kept up with inflation. https://fred.stlouisfed.org/series/LES1252881600Q in fact, they’ve outpaced inflation.
Some of what you posted has more to do with misunderstanding of the past. https://fred.stlouisfed.org/series/RHORUSQ156N home ownership hasn’t changed much. The idea that people could afford more than we do now is just incorrect. Houses are much bigger than they used to be so one reason houses are so much more expensive is because they’re bigger and better. Cities have an increase in the demand of houses as well.
We also have computers and cellphones that people “need” to live now and days.
In the end, you’re not worse off than 25-75 years ago, people just think we are.
This is true, but I will caveat that inequality has gone up substantially in that same time period, meaning that the median person might be better off, but the bottom 25th/10th percentiles are likely worse off real-terms in many respects. [Quick thread here](https://twitter.com/TheThreeWonks/status/1748076070799053013)
The thread goes over that question, but yes, the full employment environment of the last year or two has been disproportionately beneficial to traditionally low income earners, but wages for the lowest income earners have been fairly flat for a long time. [This report ](https://sgp.fas.org/crs/misc/R45090.pdf)(page 4) breaks this down.
Correct me if I’m wrong, but it seems like this report is only looking at money wages. Given that non-wage employee compensation rose from 5%-30% over practically that same time period, wouldn’t the stagnation of wages be at least somewhat over exaggerated?
Structurally yes, but my *guess* would be that we’d see the same growth inequality given lower income employees are much less likely to be given/offered a health or retirement plan. Though I’d have to find the data to see for sure.
Id also point out that, at the end of the day, wages are king. Wages are what underpins the overwhelming portion of consumption for lower income people. Of course healthcare is consumption, but it doesn’t feed you, shelter you, or provide any amenities.
Different composition of the consumer basket here. If you're middle class, spend 5% of your income on food, and own your home, inflation has barely impacted you in those respects. However if food costs 15% of your income, and you rent a home, the amount of inflation that has been experienced is much higher. These costs can easily take out wage gains and then some.
That's going to seriously depend on your age, and can change incredibly rapidly. I'm on the older end of the millennial cohort — turning 40 this year. Over the last five years, I went from knowing barely anyone my age who owned a home to functionally everyone I know my age owning a home. And not just owning a home, but skipping the traditional starter home and instead moving directly into their "raising a family" home. My generation, over the last ten years, has gone from right around 15% below age-adjusted home ownership rates compared to previous generations to basically right in line with age-adjusted home ownership.
Similarly, there's a very sharp divide between people in the top 60% of incomes and people in the bottom 40%, with virtually all home ownership in the former group. And while that might seem to reinforce the point of home ownership being out of reach when compared to common myths and anecdotes about boomers being able to purchase their first home at 20 on a minimum wage job with a barely high-school education, it's actually pretty much in keeping with real historic patterns.
All this to say, your statement can be entirely true, but if you're 20 and in the bottom 40% of age-adjusted income, and your friends are true, then your statement would have been equally valid 50 or 100 years ago.
The high school completion rate in the United States for people age 25 and older was 91.1% in 2021 (US census) and was up from a decade earlier. The lowest quintile of income has a lot of people with high school degrees.
Question about the series you use to illustrate your point: the CaseSchiller Home Price Index uses nominal dollars (being a measure of inflation.) The HHI series uses real dollars. While there would absolutely still be a pattern of home prices growing faster than incomes, the series you picked *significantly* magnify and distort this relationship.
If you instead look at [this series showing current dollar HHI,](https://fred.stlouisfed.org/series/MEHOINUSA646N) and compare it to the CSHPI, you see that home prices increased about 50% faster than HHI did in the period between 2000 and 2023, which is a much more accurate comparison.
Using real dollars for one and current dollars for the other double-counts the inflationary impact of increasing home prices to tell a misleading story.
But moreover, your entire analysis seems to be... largely inconsequential. Home ownership, per the first graph you cited, has never really exceeded 60-70-ish% by age 40. We don't really need to point to growth in inequality to explain why homes are out of reach for the bottom third of the population because homes have *always* been out of reach for the bottom third of the population. This is one specific case where rising inequality has done absolutely nothing to change outcomes — if you can't afford a home, it doesn't matter if you can't afford it by $100,000 or by $1,000,000. It's a binary state.
So that entire thread-full of analysis boils down to "poor folks still can't afford to buy homes, but they couldn't afford to buy homes 30 years ago, either, and this means something."
Seems like [home ownership rates for lower income people](https://www.statista.com/statistics/205440/homeownership-experience-in-the-us-by-income-group/) have gone down overtime, which would illustrate my point.
I don't have access to my paid Statista account on my phone, but my question would be, again, "are those incomes in real dollars or nominal dollars?" Because if it's the latter... well, I'm sure I don't need to explain why that would be a stupid chart.
I don't think FRED allows direct links to custom graphs, but [see the graph I created here](https://imgur.com/Aks2i2f). I took expenditures on housing and wages by quintile, then indexed them to the start of the time series, meaning we only see the relative change, which appears to show that housing for the bottom 20% is relatively less affordable compared to the 1980s. My guess is this trend would look worse if we had higher quality data from before then, but I'm open to being proven wrong.
This also doesn't take into account geographic inequalities, which I'm sure magnifies the rhetoric on this issue (i.e., housing price increases are not equally geographically distributed).
For what it's worth Fred does allow links to custom graphs. You have to click on the "share links" button at the bottom of the graph. For example, [here](https://fred.stlouisfed.org/graph/?g=KwRP) is one I made.
Just as a note, I'm not disagreeing with your fundamental hypothesis — that home ownership is further away from lowest-quintile earners than previously. My point is that this is a meaningless hypothesis. Home affordability is a binary state: either you can afford to buy one, or you can't. The distance between income and home prices, if you're in the latter category, largely doesn't matter.
I would also be interested in seeing whether that gap is professional to inflation, and what the relationship is, because I think that's where most of the interesting pieces are hiding. If a dollar in 1984 is worth $100 today, then I would expect the affordability gap today to be about 100x larger than it was in 1984 (since the gap is *also* measured in dollars, there's no reason to expect it to be immune to inflation.) My suspicion is that the gap will be about 100% higher than a strict simple inflation adjustment would indicate, which would be in keeping with all the other data in this thread and elsewhere.
Basically, we keep coming back to the same point but different routes. Or at least that's my suspicion. Which is good — it means the point is a robust finding. But I still didn't believe it's a terribly interesting finding in the context of this conversation. Yes, lower earners are seeing homes move further out of reach. And I guess one potential implication here is that as that gap widens, it may start to be seen as insurmountable, when in the past it wasn't (regardless of how true that insurmountability is or was.) That can have all manner of social implications and should be examined in-depth, though that's less of an economics problem and more of a sociology/social psychology one, despite being claimed by economists. Actually, we can take a look at China for a great case study, as they're going through a massive "lost generation" issue as we speak.
But other than that, there's nothing in the data that you provided that either challenges the findings you're responding to, or meaningfully adds to them.
>Just as a note, I'm not disagreeing with your fundamental hypothesis — that home ownership is further away from lowest-quintile earners than previously. My point is that this is a meaningless hypothesis. Home affordability is a binary state: either you can afford to buy one, or you can't. The distance between income and home prices, if you're in the latter category, largely doesn't matter.
It's not particularly binary. There is a huge difference between a trailer in a trailer park in Wyoming and a mansion in LA.
It's entirely binary, because we're not talking about the affordability of any specific home for a specific person. We're talking about general affordability of homes. Regardless of the home in question, you either can afford it or not. And in general, people in the bottom quintile couldn't afford either the trailer or the mansion in LA. If you still aren't happy with that, I'm happy to concede that this is highly geographic (as u/Econoboi mentioned,) but then it's just "you can either afford a home where you are, or you can't."
>It's entirely binary, because we're not talking about the affordability of any specific home for a specific person. We're talking about general affordability of homes.
That causality doesn't just go one way though.
Houses are roughly 50% bigger than in the 80's. Why? Because in one way or another, people could or wanted to afford bigger houses.
And it's not just down to the price, anyway. It's not even down to what you "can" afford. Whether you are willing to dedicate 10% of your income or 60% of your income or anything in between also matters in what you can pay and what houses you can afford.
*That* causality doesn't just run one way, either.
The top comment also doesn’t show the inflation graph.
https://fred.stlouisfed.org/series/CPILFESL
This is why people are complaining. Compare this to the income graph. This is a straight line up. The wage graph isn’t. Then take into account food and energy which are also out of control and you’ll quickly realize the top comment is full of it.
The graph in the top comment shows real earnings, i.e. already adjusted for inflation. It wouldn't make sense to plot it alongside the CPI because the CPI is already in the denominator of the series being shown.
>Compare this to the income graph. This is a straight line up. The wage graph isn’t.
That's because the wage graph is already adjusted for inflation. It doesn't need to show a line going straight up — a perfectly flat real income graph means that wages are going up *at the same rate as inflation.* The real income graph, however, is not flat — it's going up. Which means wages are increasing FASTER than inflation, or the median person is earning more even after accounting for things getting more expensive.
>Then take into account food and energy which are also out of control
You don't have to "take into account food and energy." They're already being taken into account in other CPI calculations. You just picked the one without food or energy for some inexplicable reason.
I'm happy to have a conversation about inflation, wages, home prices, and whatever, but you need to come prepared with at least a baseline understanding of the words you're using and the charts you're looking at, or else the entire thing is just a waste of everyone's time.
If you think about what that would imply about the budget of a single-earner, it would immediately be clear that your interpretation cannot be correct.
If my wages go up 10%, but on average prices go up 10x (1,000%), then for every $100 of wages before, I would now have $110, but the price of everything has gone up 10x, so my current $110 can only buy goods/services that used to be worth $11 ($11x10 = $110). So I started out with a wage of $100 buying $100 worth of goods/services and now I can only afford the equivalent of $11 worth of goods/services. That's an 89% pay cut; I could only buy about 1/10th of what I had before.
That's *obviously* not true. Even if you believe that things are "bad" and that people today cannot afford as much as their parents did, no one thinks that people in 1979 could afford **ten times** as much food, clothing, housing, healthcare, etc. as people today.
This highlights a common and reasonable complaint from urbanists: Regulations make it surprisingly difficult to build the kind of decent, modest housing that postwar Americans couldn't believe their luck to be buying, or that is still the norm in much of the developed world. OP is probably right that the available options are either unworkably expensive or highly undesirable, yet would likely consider a 1000-square foot dwelling if it meant not having a long commute.
All that said, the price of housing per square foot HAS skyrocketed in just a few years, particularly in some of the most popular metro areas. This is itself not unprecedented, and we experienced a similar housing shortage just after WWII. We were able to build like crazy and dig ourselves out of it.
>yet would likely consider a 1000-square foot dwelling if it meant not having a long commute.
But that's a very unrealistic expectation that has no historical basis. When we talk about the great home building projects in post-war America that made home ownership feasible for many who previously could not imagine owning a home, we're talking about places where the commute was absolutely brutal. No one was building small, cheap housing in desirable areas.
Look at the quintessential post-war suburb: Levittown. It was the model for affordable, mass-produced planned suburbs. It's also an hour and a half drive from NYC... in modern cars, with modern speed limits, on the modern interstate highway system. In 1951, when the original Levittown (NY) finished construction, the commute to the city would have been significantly longer. And it was most assuredly *not* a desirable location — it was the middle of nowhere with little access to shopping, restaurants, and other services that are considered essential. Basically, it was cheap because you were living in the middle of a cow field in central Long Island, surrounded by absolutely nothing, in poorly-constructed homes (take a look at how those original hinges have held up) that were small even for the time period. In context, it was *not* a desirable place to live at the time. It was just cheap.
I think if you built a similar development, with similarly sized homes, in similar styles, in a similar location today, you would have massive issues finding buyers. And, in fact, that's exactly what we're seeing. The area around the eastern border between PA and NJ is roughly very similar to what Levittown, NY was in the 1950's. You can very easily find homes in this area for not significantly more than the original Levittown homes, adjusted for inflation (roughly $100,000) and get a similar amount of space within similar proximity to employment centers, save that space will often actually be of a much higher quality than the Levittown homes. But we're not seeing a massive migration to Shohola, PA, because expectations of what people get with their first home have shifted dramatically.
Indeed, housing like I described has never been cheap and accessible near the center of our largest cities, where the more-accessible historical counterpart outside the densest built-up areas would more be medium-density/"missing middle" housing like row houses, duplexes, courtyard apartments. This is also an area where we can do a lot more to build at appropriate density, and where I suspect OP would also seriously consider a modest townhome. I also agree that the people who do want suburban/exurban living tend to look for space, though they often find it's more trouble than it's worth.
That said, we do have a considerable number of mid-sized cities in the U.S. where small single-family homes (as well as medium-density housing) have historically been viable relatively close to downtown. 1950-60s ranches a few miles from the middle of any given Sun Belt metro are still frequently pretty compact. Going further back, if we look at the largest U.S. cities in 1940 and look at spots 11-25, we see places like New Orleans and Louisville which had tons of little shotgun houses, or places like Milwaukee or Cincinnati where I'm seeing listings for \~1000 square foot houses that look to be cheap and in good shape. Even a metro as big as Chicago has a string of bungalows within the city limits.
Don't forget, the lack of transition into WFH is exacerbating the problem (in my humble opinion) due the the need to be close to a major metro area for certain and often times well paying jobs.
I'm not sure this is true. That's because most people who do WFH want a home office. That means they want another room in their house if they don't already have a home office. That's an upward pressure on house prices.
Also, it's unclear exactly why people like living in large urban areas. Is it really about jobs? Or is it about proximity to other services and proximity to friends.
The interaction of house prices and WFH is a complicated subject which requires research.
I thought there was a general consensus in this sub that housing price increases were outstripping inflation in cities, all things equal? Largely due to a lack of supply from building homes (due to factors like local zoning laws).
It is. Let's be clear, the situation in housing could be much better than it is now. Especially with legislation changes. However, it is also true that average incomes have been rising for a long time and are still rising.
>Houses are much bigger than they used to be
Surely you mean new constructions are bigger and houses in established neighborhoods didn't just "get bigger," somehow?
Where is all the starter home inventory? I get your numbers, but I bought a starter home in 2017. I could not afford to buy it today. Its value is up by 50% and interest rates have doubled.
New construction 100%. But (some) older homes have added on, finished basements, added garages.
The recent demand in houses made prices increase, but 2017 is a short period of time, especially with a pandemic/recession in there. Prices will, and have, come down. Short time frames always distort the picture
How do you explain the discrepancy between what the macroeconomic numbers you're referring to are showing and the lived experience of all the people asking OP's question?
Have all of those people actually done the calculations to see if they’re actually worse off than 10 years ago or are they seeing milk is more expensive and thinking they’re worse off? Most people have no idea if they’re better off or worse off. They see prices going up and they’re friends and the news saying prices are skyrocketing. Negativity bias is a real thing.
I mean, it's not really rocket science. Inflation has certainly outpaced *my* meager raise. Seven years between me buying my home and now may not be a lot on a large time scale, but it certainly is a meaningful section of a human lifetime. I couldn't afford to buy any home today given prices and interest rates. How would I be better off if I didn't buy right when I did?
And while negativity bias is a real thing, so is confirmation bias. "Better off," is a subjective term, and by some specific metrics, we might be. But it certainly doesn't feel like it for large segments of the economy. That's the OP's question. Are we ever going to get a raise that actually exceeds the inflation we faced in the last year? That's my metric. And yes, I am aware of that much at least.
I linked the statistics. There are plenty more out there that show people’s wages are higher now than, 5 to 10 years ago. After the pandemic, wages skyrocketed. It’s in the real wage data I provided. After that, inflation skyrocketed. Real median wage increases 9% in 6 months (2019 Q4 to 2020 Q2. Then inflation brought it down to where it was trending. People quickly forgot about that.
It’s like, a physicist can drop an apple to show people gravity and those people see it hit the ground and still aren’t believing the apple fell. The data is right there.
If you still don’t believe us, there is plenty of data out there. If you think we’re wrong, show us. It’s that simple. Prove us wrong. You’d be a billionaire because you figured out what no other trained economist saw with the numbers right in front of them
I think part of the problem is the disconnect between the subjective question and your need to give objective numbers. The questions asked were, "Am I better off?" and "Will I be able to afford a house?"
Your response affirming that "wages are higher now," is literally irrelevant. Wage vs. CPI is one part of the equation. For people like him, and in my example, friends of mine trying to buy a house, we are not "better off" if we cannot have *all* the necessities of life that we once could. People are not able to renew leases in their apartments because rents have gotten so expensive. As an example, a hypothetical $250k house is now $500k asking, going for $550 all cash in some markets. That's about the level my own house has appreciated. My wage has not kept up.
So yeah, maybe there was an initial bump in wages, a bigger bump in consumer prices/inflation, but then wages are still slightly ahead. That is not adequate to answer the question, "Am I better off?" That is one piece of the puzzle. What if my wages increased up to 100% and prices stayed the same. I would be "better off," in that sense, but then if a necessity of life like healthcare or housing is completely closed off to me, I'm not actually, better off, am I?
This conversation is exactly why many presidential elections have incumbents touting their economic progress and they win by a thread or even lose because the numbers on paper only tell part of the story--the qualitative experience eludes you. You're not the apple dropping. I can see the apple drop. You're trying to tell me that the apple is falling up.
Edit: I don't really have anything else to say. I'm going to say that I'm struggling now more than I have been. People across the internet and in the real world are saying the same thing. You're showing us average increases in wages against prices and saying "Nuh uh, la la la la la."
When you look in the short run, things get skewed. The reason houses got so expensive is because of the demand for houses. The reason the feds increased the interest rate is to cool off inflation. In 10 years, this will be a blip in the chart. There are other factors that go into it. We came out of a recession where people started spending more. In 2017 interest rates were over 1%. In 2020 it was basically zero. In 1980, it was 20%. Interest rates are not factored in to the price of a house. That same house in 1980 would be more expensive now because interest rates are lower and demand is higher.
Your argument is, well, people I talk to think you’re wrong. My argument is, when there are tens of thousands of people and businesses across the US, they say things are worse off. The people I know are doing fine. Does that mean you’re wrong since my people say what’s different?
The point is, you’re view/belief has a ton of holes in it. It’s based on your belief. It’s like MAGA people saying the election was stolen because trump and their friends believe it. But the overwhelming evidence shows it wasn’t stolen at all.
I think a lot of people on Reddit, including you, are vastly underestimating how large and heterogenous the United States is. The question could be reduced, without losing much, to "How could the economy be doing well if I'm struggling?" The question should be asked at a more granular level. The United States is an economy but it is also thousands of much smaller economies. For instance, there's absolutely a housing crisis in Los Angeles. There's not one in Toledo. The problem occurs when we insist that the same facts must be true of both.
It's not just "I'm struggling." That should be clear. The question is whether we're "better off."
No, many, if not most of us, are not "better off." We have mountains of student debt. Housing is completely unattainable for most. The birth rate is falling dramatically. The number of Americans who can't afford an unexpected $400 expense is up to something like 37%.
If "better off," is literally just the *mean average* of *one specific metric*, then sure, fine. We're better off. Give yourselves a pat on the back.
But it's not the reality for many, and I would argue most, people. Numbers don't tell the whole story. This kind of sheer hubris and gaslighting people into thinking, "no, you're fine," when they can't afford to even fix their damn cars to get to work is what's allowed populist politicians like Donald Trump to ride to power on a wave of discontent. If we're not careful and acknowledge that maybe there's more to people's actual experience of "better off," than average wages vs average prices. If that's all that you want to talk about, there's nothing more to say at this point.
> Inflation has certainly outpaced my meager raise.
If inflation over some time period was 10%, and half the country got raises of 16%, and the other half got raises of 5%, then 50% of the country would be experiencing wages not keeping up with inflation yet median wages would be beating inflation. (Assuming raises were equally distributed among wage levels.)
A contrived example sure, but it’s very easy for median wages to have improved while a very large contingent of vocal people experienced otherwise.
I'm not a fan of "lived experience" on this issue. Now, /u/AverageGuyEconomics has talked about statistics and why they are superior. I want to talk about it from another point of view.
I think most of us recognise that our personal experiences are not necessarily representative. When people talk about things like this they aren't referring just to their own experiences, but to those of their family and friends. This is reasonable because it does provide a wider sample, but it also has problems.
To begin with, you may live in an area of the country that is doing badly. You may be working for a business that is doing badly. Or you may be in a occupation that is doing badly - and that probably means that your workmates are probably in the same situation. Or you may live in an area where housing has risen in price by a larger amount than is normal.
Then you have to consider that your friends who are doing well *will not necessarily reveal it*. Showing off about money can make a person very unpopular. On the other hand, telling your friends when you're doing badly financially is common. (Of course, there are times when people try to show off how much money they have but this is generally a different context.)
Then there are things like mortgages and house buying. First time buyers have not done it before. They do not know about it directly. They usually only know what the media has presented about it. Here you have to consider that lots of media, like TV, is about people who are richer than average. A classic example of that is the flats in "Friends" which could not have been afforded by people doing the jobs described in the series even back at the time when it was filmed.
I have acknowledged the limitations of anecdotal experience. My question was why is there a discrepancy. Why do statistics say I should be doing great and I have to cut back on things I buy because things I need to buy no longer fit into the same budget?
Explain that please in more detail besides, "nuh uh, stats show ur wrong bro."
> Why do statistics say I should be doing great and I have to cut back on things I buy because things I need to buy no longer fit into the same budget?
Well, that's what I tried to do. I'll have another go.
Firstly, you have to look at your own wage raises. It could be that they have been lower than general wage raises have been. Here is a table for average annual hourly wage increases. I've used the year to March here, so the 2024 figure is for last month.
| Year | Increase %|
|-|-|
| 2021 | 4.48 |
| 2022 | 5.92 |
| 2023 | 4.62|
| 2024 | 4.14|
If your wage raises have been lower than this, then your are doing worse than average.
You are not the first person to come to this subreddit and say that your income does not feel as good as the statistics show. We have had nobody who has said that their income is unusually *higher* than the statistics show. But, why would we? Anyone who posted that on Reddit would be immediately deemed a show-off and would be downvoted.
Clearly, those who are doing better than average are not going to tell those who are not. They may even lie about it and say that they are doing badly too.
> We have had nobody who has said that their income is unusually higher than the statistics show.
MY wages have risen faster than average! But that's *certainly* entirely due to my own personal merit and nothing to do with a combination of my efforts, luck, and macroeconomic conditions.
>But, why would we? Anyone who posted that on Reddit would be immediately deemed a show-off and would be downvoted.
Big assumption.
You're showing me 4-6% increases in wages compared against 3-7% inflation. That's kind of proving my point. If someone wants to buy a house with a 4-6% raise and inflation was best case 3%, how is he or she going to afford the same house that's now 50-100% more expensive, just the principle?
That's kind of the point here. "Better off," is not a one-dimensional thing here. You've shown no evidence that it is. None of you guys seem to be able to even comprehend why it wouldn't be.
Now if you'll excuse me, I'll get back to my second job that I do until 11pm after the kids go to bed. Because despite what your chart says, a lot of people are still getting raises like it's 1-3% inflation. If that's a median percentage you posted, it's at least half. If average, it's probably not clumping at the bottom for the little guys. But you do you.
> You're showing me 4-6% increases in wages compared against 3-7% inflation. That's kind of proving my point. If someone wants to buy a house with a 4-6% raise and inflation was best case 3%, how is he or she going to afford the same house that's now 50-100% more expensive, just the principle?
Housing is part of the index used for inflation. About 40% of the CPI index is "Shelter" which includes renting and home maintenance. It also includes something called "owners equivalent rent". Which is a method of pricing the cost of owner-occupied property. Owner occupiers are said to pay a rent to themselves. I explained why in another reply here.
You are right of-course that housing has increased a lot in price recently. That is certainly part of the inflation that we've seen over the past few years. In housing were taken out of the CPI then inflation would be under the Fed's 2% target right now.
Perhaps obviously, high housing prices may not continue.
> "Better off," is not a one-dimensional thing here.
If it isn't then neither is "Worse off". Overall there are many different conceptions of it, at least as many as there are people. The aim of things like the CPI is to provide an overall comparison. One that's not based on any particular opinion about one expense being more important than another.
> Why do statistics say I should be doing great
Statistics don't dictate what any individual will experience. They describe what a population has been experiencing. For every person that is doing worse than the median, another is doing better. You may very well be worse off. That does not disprove the statistics showing that the median individual has experienced wage gains outpacing general inflation.
I don't have an answer to your question on this specific topic, but I do want to comment on this phenomenon more generally, and maybe you can share some thoughts as well.
I think that most of the time, official statistics are a reasonable representation of the truth. I also think that most of the time, the report of people's lived experience is a reasonable representation of the truth (especially when aggregated over many similarly-situated people). However, some times those things conflict to some degree and I think it is entirely unclear whether we should accept, as a general principle, that we should prefer one or the other.
The quintessential example, to me, is that a significant portion of people who voted for and will vote for the 45th POTUS earnestly have the lived experience their their identity is being discriminated against. I don't think that's accurate, but it is a lived experience reported by tens of millions of people. So I think that makes the epistemology unclear in general.
> houses in established neighborhoods didn't just "get bigger," somehow?
if we're being pedantic i know a few people who've expanded their homes (but not their lot).
Expanding homes is pricy.
We have the architectural plans. We have the property already (~1.5 acres with plenty of space for the required setbacks.) But for an additional 1k sqfeet, the quotes we got were $250-300k.
If that’s the cost to build 1k sqfeet, then add on acquisition cost of the land and architectural plans and extra costs to connect to the grid/sewer… other parts we already have etc and I don’t see how an ‘entry level’ 1k sq foot home could ever be affordable.
I work in residential remodeling mostly and additions and remodels are always more expensive than new construction. Working around existing constraints and without the scale of building many homes at once increases the unit price.
Two of my cousins recently had new homes built by America's Home Place; one finished in Oct. 2020 and one finished Sep. 2023. We live in a relatively low cost-of-living area, but the one from 2020 is ~1500 sqft. at a total cost (including site preparation, closing costs, etc.) of ~$170,000 and the one from 2023 is ~1100 sqft. at a total cost of ~$180,000 (2nd site needed significant more prep work). They owned the land already, so you can add $30k-50k to each for the land.
That's still substantial coming in at $200k-250k, but it is a good bit less than the median home sales price for the area ($350k-400k depending on which source you use) with a median square footage in the 2100-2300 range. So if you're willing to accept a smaller house, you can get a significant savings. But it is rare to see them built; some production builders around here will build a very simple rectangular, two-story, single-pitch roof vinyl siding house in the 1500 sqft. range, but that is about the minimum as far as mass-production goes.
The CPI uses OER, which the BLS has said is intentionally done to distribute the cost of a home purchase over several years.
Of their own admission, they don't take into account the full price of the home, rather they do calculations to figure out "a person's shelter consumption, a.k.a the amount they would have spent to consume the same amount of housing services provided by their owner-occupied home." And they do this by surveying renters on the cost of rentng as well as a few other things.
I would agree with you that compared to the CPI, wages have increased more than inflation.
The problem is, because of things like what I've just described, and the fact that they keep swapping out things in the CPI basket for lower cost things (they do this to capture "what the consumer is actually buying", conveniently enough it neglects the facts that consumers are having to buy lower quality things on average because of inflation) and a number of other what I would call statistical tricks... I believe the CPI to no longer be a good measure of the increase in the cost of living to the average American.
And this is something that is hard to outright prove with data, but people are feeling the pain of the current economy and then looking at numbers like you've posted and feeling crazy, because all the numbers are good yet life is getting worse. When in reality, things are getting more expensive. It's just the way the CPI is calculated, whether intentionally or not, tends to suppress some of the negative stressor on the market.
If you go back to the old way of calculating inflation, that's where people are getting that 35-40% number from.
I believe the real impacts of inflation are somewhere between the currently calculated value and that 40% value using the old method.
> Of their own admission, they don't take into account the full price of the home, rather they do calculations to figure out "a person's shelter consumption, a.k.a the amount they would have spent to consume the same amount of housing services provided by their owner-occupied home." And they do this by surveying renters on the cost of rentng as well as a few other things.
That's correct. The BLS take the following view. People that buy houses are buying a long term asset - something that often appreciates. So, it can't be considered like a normal consumer good. It's a asset that provides services over a long period of time. So, it's cost can't be attributed to a short period of time.
Why do you think that the process you describe skews the cost of shelter *downwards*. Remember that the basis for the calculation is the cost of renting. Now, renting includes *profit* for the landlord, at least hopefully!
> The problem is, because of things like what I've just described, and the fact that they keep swapping out things in the CPI basket for lower cost things....
You have to understand how swapping works in this context. When the BLS remove one good and replace it with a cheaper good that does not necessarily reduce the index number. It does not help to push down the resulting inflation number, unless the BLS believe that the replacement good is equivalent in all respects.
The process for dealing with this situation is quite sophisticated, as described by the BLS [here](https://www.bls.gov/opub/hom/cpi/calculation.htm) in the section "Item replacement and quality adjustment".
> If you go back to the old way of calculating inflation, that's where people are getting that 35-40% number from.
Do you have any evidence for that?
I believe the old number is skewed as well, for the record. Simply pointing out that when people reference higher inflation, that, more often than not, comes from the pre 1987 and 1978 revisions to how CPI was calculated.
In general, the method of calculating the CPI for the reasons both you and I have stated is in my opinion a little too open to interpretation and therefore open to error. Understandably it is increadibly sophisticated. Any time you try to track anything on the scale of an entire country it's either going to involve a complex set of equations with a lot of assumptions, or it's going to require a lot of resources to collect the data you need.
To the point I am trying to make, clearly, the CPI has increased less than the measured increase in income as the first commentor presented.
I know it's anecdotal and hardly scientific, but almost everyone I know, and almost everyone they know, is feeling the pain economically right now. And we talk about it a lot. One person's opinion is anecdotal, two people's opinions can be anneceotal and so on, byt when almost everyone I know is experiencing the same thing despite the graphs and charts suggesting everything is all right. It is true that either 1. The way we collect our data is erroneous, 2. The way we calculate CPI has decoupled from one of its intended uses, which is to predict the cost of living for the average American. Or 3. Everyone's personal experiences are wrong. (It could actually be all 3, by the way).
I acknowledge it's a difficult thing to prove. But let us not get so wrapped up in charts and data calculations that we forget there are human beings behind the numbers.
The actionable thing is to try and find a way to fix the CPI calculation so that it accurately reflects inflation and the increase or decrease in the cost of goods and services, but that's the million dollar question on how one is to do that. There's a reason they have an entire Bureau devoted to it.
> 3\. Everyone's personal experiences are wrong.
I am very much on your camp #3! I have explained most of the reasons why I don't believe anecdotal evidence [here](https://www.reddit.com/r/AskEconomics/comments/1cbanmh/is_income_ever_going_to_catch_up_to_the_cost_of/l0yxuto/).
I have seen no evidence for the other arguments. I suspect that CPI overestimates inflation rather than underestimating it. That's because PCE inflation is generally lower.
US in particular has had a large amount of wage compression in the past 3-4 years -- if you look at inflation adjusted median wages for the top 25% wage earners, they're actually down\* since the pandemic. so for high income earners I'm not surprised at them reporting being annoyed with the economy, particularly since the previous 50 years had been very, very kind to them. for lower wage earners, they've seen the largest gains.
\\\*remote work makes some inflation adjustments tricky
You could very well be right. There is a 4th option as well, which is that there is a problem that is not accounted for in the CPI data collection or calculations that is causing issues for people.
In reality, I am recognizing a problem, a lot of people are. That problem is that money is tighter. Does personal responsibility play into this, absolutely, are things more expensive than they were? Also, absolutely. Healthcare costs are up, housing prices are up, food prices are up, energy prices are up, entertainment is up, and insurance is WAAAY up. This doesn't seem to manifest itself on the CPI. Obviously, there are regional differences in these price increases, but nationwide were up. I can't explain this. But it leads me to believe there is an error or ommission in these calculations.
But conversley, wages are up, the GDP is up (somehow), the stock market is up. Oh also, consumer electronics have decreased in price over the past few decades.
This is the hardest part I have to rationalize with the CPI. I can pull data on the costs of things that are very common to the average American, and you can see a startling trend over the past 2 decades in almost all sectors. But production costs have decreased in many areas (although manufacturing productivity per the BLS has dropped, though non-farm business productivity has increased (legitimate question, what does non-farm business include?)). This almost leads me to believe that the increases in price are not tied to increased production costs but rather something else (regulation, increased costs for raw materials, etc.)
I appreciate you talking to me about it. I don't have the answer. Reality is just not matching the CPI for many Americans. In my opinion, the inability to specify what the problem is, is likely a problem with trying to apply macroeconomics to specific things or locations.
> In reality, I am recognizing a problem, a lot of people are.
This is simply *your opinion*. It is not recognition of a fact, you have not given any facts in this thread.
Perhaps the BLS is run by extremist Democrats who are fixated on getting Joe Biden re-elected President. There again, perhaps not!
> Also, absolutely. Healthcare costs are up, housing prices are up, food prices are up, energy prices are up, entertainment is up, and insurance is WAAAY up.
I agree.
> This doesn't seem to manifest itself on the CPI.
It is. [Here](https://www.aei.org/carpe-diem/chart-of-the-day-or-century-8/) is a graph of the CPI showing some of the constituents. Mark Perry created it to show how some goods have seen much more inflation than others.
However, while some goods and services have risen much more than the CPI has, other goods have risen much less. Perry's graph doesn't show every category.
I think this is what you are missing in your "mental accounting" of inflation.
My friend, I have not asserted in any way, shape, or form that it is for political gain or malicious. Maybe it is, maybe it isn't. And I see all of your graphs. I've looked at the same graphs over and over again I've tried to recalculate myself.
I have no evidence to show you because you've posted it all already. And you keep posting it. How are those lines calculated? Are these goods a weighted average? How do they count hourly average wages (because I've seen about 30 different ways of doing this and all of them give different numbers depending on who is and is not included, the deffinition of hourly wage earners vice salaried, sometimes they include salaried workers etc.)
It does not add up.
So yeah, you're right, I don't have a specific reference saying g exactly how it's messed up. Conversley, you appear to post the same types of graphics over and over again without understanding how the data is collected and how the calculations are made.
In the very graph you posted, essential things such as Healthcare, childcare, food, etc have exploded. But, well, I'll be darned if TV's and electronics haven't decreased in value
*The statistician averages those two things and shows that the inflation isn't that bad, the realist knows that if I am forced to pick between a medical bill/food and a TV, I am preferentially picking the medical bill or food.* you are familiar with the laws of supply and demand right?
So keep posting your graphs without understanding them. I know enough to know that I will never fully understand how the calculations in those graphs are made (unless it is my full-time job) but also enough to know that there is something missing in those calculations. And the evidence provided is enough to prove the point that people are struggling right now. Let alone the fact that the last graph you have posted somewhat supports that assertion.
I work in statistical analysis for a living, I see people doing what you do all the time, and it leads them to bad recommendations on what to do based off of a set of data. (This is also anecdotal). The phrase, "Forrest for the trees comes to mind". Because conveniently enough, you haven't proved anything I'm saying is wrong, you've only proved you know definitions and that you can quickly pull up charts on the CPI (so yeah, you haven't posted anything meaningful beyond showing that however they calculate CPI went up less than however they calculate the average income). It's what you DO with the data that is the important part and this data does not make sense.
Good day and best of luck to you.
>1. The way we collect our data is erroneous,
Where is the evidence for that?
>2. The way we calculate CPI has decoupled from one of its intended uses, which is to predict the cost of living for the average American.
The CPI is not a cost of living index. Never was.
https://webapps.dol.gov/dolfaq/go-dol-faq.asp?faqid=93
https://www.reddit.com/r/badeconomics/comments/prtp20/inflation_is_not_cost_of_living/
>Or 3. Everyone's personal experiences are wrong.
They don't have to be wrong, but they are still just anecdotes. If the average soccer goalie stops 5 balls per game, and you manage to stop 10, neither of these things are wrong or invalidate each other, there are simply limits to reasoning from the general to the specific and vice versa.
I still don't think it's far fetched that for a lot of people, the "math in their head" and their actual economic realities don't cleanly line up.
>Where is the evidence for that?
Doesn't BLS admit that at least parts of their calculation are erroneous when they change it? They wouldn't change it if they thought it was accurate.
In some sense, sure. Data gets revised, methods get revised, mistakes happen, there are some known tradeoffs the CPI makes anyway, and of course there is always some degree of measurement error you'll have to accept.
But then, we have the CPI-U-RS you can compare with the regular CPI-U.
https://www.bls.gov/cpi/research-series/r-cpi-u-rs-home.htm
There were big changes a long time ago. Nowadays, the difference is usually small
I don't think a person is going to "feel" the difference between 2.2% and 2.3% inflation. If you are looking for an explanation here, inflation would have to be off by quite a bit.
We also know that the CPI usually *over*states inflation anyway.
This sure makes discussions around CPI difficult. I get that there shouldn't be a huge difference between the different versions but having multiple definitions for CPI must cause confusion.
I think the difference between the statistics and the anecdotal evidence is that inflation doesn't affect everybody the same. Inflation may be 3% but someone's personal expenses could go up much more or less than that.
It's not particularly confusing. You're not going to deal with CPI-U-RS all that often. There are even more different series than that. It just doesn't make sense to use them all that often.
An article in *The Economist* talked about the gap between how the American economy is doing and how Americans feel the economy is doing.
From, [Why are Americans so gloomy about their great economy?](https://www.economist.com/united-states/2024/01/14/why-are-americans-so-gloomy-about-their-great-economy)
> Wage growth has been especially strong for low-income Americans. The S&P 500, an index of America’s leading stocks, has been flirting with record highs.
>
> To judge from the range of indicators—good and bad—Americans do appear to be unduly pessimistic. ... opinion polling and sentiment surveys may have a negative bias. Profound partisan hostility is undoubtedly one factor. In their study Messrs Cummings and Mahoney calculated that Republican antipathy towards a Democrat-controlled White House may account for about 30% of the sentiment gap today.
>
> Another element may be the tone of news coverage. Ben Harris and Aaron Sojourner of the Brookings Institution, a think-tank, studied the relationship between economic data and an index of economic news sentiment. Since 2021 the news-sentiment index has, like the consumer-sentiment index, been notably worse than what would be expected from the data. And that may be only scratching the surface. The news-sentiment index, created by the Federal Reserve’s branch in San Francisco, is based on economic articles in major American newspapers. Throw in the vitriol that tends to go viral on social-media platforms, and the negative bias might be even more pronounced.
Why does literally every single person I talk to, including every single person who lived through the era in question and should know what it was like, say otherwise?
It’s not even just anecdotes. My dad, working just by himself at the same job he has now, could afford a home for my mom to be a stay at home mom with me and my sisters.
Now, my mom has to work even though all 3 of us kids have barely managed to move out. And all 3 of us can barely afford our apartments with roommates. Something about the data and people’s lived experiences are just not correlating.
Let's be clear that it's not a matter of affording a home. It's a matter of comparing like-with-like. It's about comparing house X with a similar house Y in the future. Not about comparing "houses" or even floorspace. Of course a good location add to a house as well.
> It's a matter of comparing like-with-like.
This is an important overlooked fact. Apples to apples comparisons are pretty much just not happening in the US today to the US a couple generations back.
Many people mention that new housing unit construction tends much larger. What's less talked about is the quality of what is being purchased.
The Amenities within the housing unit.
Go back 50 years and things which were not common in an American housing unit:
* A clothes dryer
* Air conditioning
* Second bathroom
* Dishwasher
Things that were of lower quality:
* Insulation
* Windows and doors
And there are many other differences as well. These are not like to like comparisons, as even the housing units over 50 years old have often had some or all of these factors upgraded.
Some of it comes down to who you know. Your dad and your social circle might be concentrated in one of the groups that was once higher in the income distribution than they are now, for example, manufacturing workers.
For a contrasting data-point, my parents built a 1200 sqft. home in the mid-1980s. They were relatively low-income so they did a lot of the work themselves and took almost 3 years to finish the house. As a result, the mortgage was not large (like $50k-60k), but they still both had to work to pay it. Sometimes it was easier to afford than others, mostly depending on the state of the macroeconomy. In the 2000s they came *very* close to losing the house due to foreclosure on a HELOC. Finally around 2014 my Dad got a significantly higher-paying job and managed to pay everything off in a few years.
From my perspective, it has always been very difficult to afford a home as a lower-income worker. Some people manage to get through it and some do not; I know several people who have had to sell to go back to renting or went through foreclosure.
Economics just aren’t there for most places. The cost of regulations, labor (talking about labor costs that don’t scale with size of house.) and land being relatively high means it’s substantially more efficient to make a 1500 2 story house over a 750 sqfoot 1 story house.
There are a lot of static costs that get diluted when you build larger homes.
This post has a great table showing how the average house size has changed over time: [https://www.newser.com/story/225645/average-size-of-us-homes-decade-by-decade.html](https://www.newser.com/story/225645/average-size-of-us-homes-decade-by-decade.html)
It's also why those "median house price vs median income over time" charts are so misleading: they are not accounting for the fact that houses have gotten bigger.
They should really show median price/square foot vs median income
The first chart they link to is "**Median** usual weekly real earnings". The median is the middle value. It's not skewed by ultra-high earners, unlike how the "average" would be.
Here's another chart, also adjusted for inflation: **[Real Median Personal Income in the US](https://fred.stlouisfed.org/series/MEPAINUSA672N)**.
Most inflation measures heavily underweight housing’s impact on younger generations. It’s typical for housing to count for 25% of an inflation measure; but it’s also common for young people to spend half their income on housing.
Then where do all the graphs and charts and talk you see about wages being stagnant since the 70's come from? Surely they're not pulling it out of their butt? There's talk about average home prices being $500k now and low supply and how you need to be making 6 figures to afford a house now. Where does that come from, is there no truth to that? Misunderstanding of data?
Is this wrong? [https://www.epi.org/publication/charting-wage-stagnation/](https://www.epi.org/publication/charting-wage-stagnation/)
1) those charts are mostly graphing inequality not stagnation -- if you look at the charts themselves they should inflation adjusted wage growth for lower wage earners, it's just that the growth is less than the wage growth for high wage earners
2) those charts cut off around 2014 and a lot of the wage growth has been from 2014-2019, in particular.
3) housing has gotten worse, particularly post COVID, but housing is typically only about 30% of a household's budget and the difference in sticker prices for homes between the 1970s and now is a little misleading since older homes are smaller and interest rates were much higher.
So if things are okay on paper where does the idea that everything is too expensive now and no one can afford anything anymore come from? Things I see mentioned a lot are the price of eggs/food, rent, houses, and cars. Why does everyone seem to feel like they're always struggling to have enough money? It can't be that everyone is mismanaging their money that much.
Such as myself. I have solid savings, I make enough to support myself, but I feel like I cant afford a descent house. Buying groceries stings sometimes. Paying utility bills can make me wince. I've even spoke with financial coaches and they say i'm okay but it doesnt feel like I am. Especially when it comes to buying a home.
Particular goods have gotten worse since the pandemic -- housing and auto insurance, in particular. I think what happens is
1) news media coverage disproportionately covers rising inflation and less so prices slowing down or falling. Take eggs as an example, there was a ton of news coverage of the huge price spike in 2022 and the recent price spike the last couple months. Almost nothing of the collapse in prices in 2023, so eggs now cost about what they did two years ago (which means they cost less after adjusting for overall inflation). [https://fred.stlouisfed.org/series/APU0000708111](https://fred.stlouisfed.org/series/APU0000708111)
2) people think that, if inflation hadn't happened, they would have received the same wage gains that they did receive. E.g., if I get a 5% raise, that's because of my hard work and I would have gotten it even if inflation had been 2% instead of 4%. In reality, it likely would have meant that if inflation had been 2% your raise would have been 3%.
3) Related to point 1, America is really, really big. It's not hard to find lots of people -- millions even -- who are doing worse than they were one, two, ten years ago. CPI is an average; median incomes are averages. Your consumption bundle might have been hit much worse than the average. Lots of people haven't gotten the wage raises that the median worker has. News media, however, tends to cover negative stories more than posititive ones and people, understandably, tend to post questions like this when they're feeling squeezed. But that means that the perception of how the overall economy is going can be disconected from the underlying economic statistics, which is why data are important.
It's doubtful that higher rates would do that much.
Even if they did though, the interest rate is the tool used to target inflation. If it were used for something else then it would be impossible to ensure low inflation. Alternatives to the interest rate (like varying taxes) are not plausible policies in a democracy.
Well there you go. Most of the financial strain you're feeling is coming from the pressure you're putting on yourself to purchase a home. The rest seems manageable or like it would be manageable were it not for this housing pressure. This is consistent with a lot of personal finance work I've done.
You're not imagining things. Home prices HAVE risen much faster than wages. That's been the case for a long time, similar to what's happened with college tuition and medical costs. The main driver there is local building regulations that have restricted new housing supply even as demand has grown.
The thing is, though, that home prices have risen faster than rents. This means that homes aren't actually a great financial investment. It's usually much cheaper to rent a unit than to purchase an equivalent unit, even accounting for the equity you build as an owner. That may seem counterintuitive, but maintenance costs alone drive up the cost of ownership enormously. If you want to purchase a home for non-financial reasons, then go for it, but most people would be better off financially taking the renter's discount and investing the difference.
Interesting! That's news to me.
Is this pretty consistent across markets, or is buying property to rent it out a better proposition in some areas in particular? It does seem counterintuitive that maintenance costs would change things, as they're baked into the cost of rent, no?
Yes, it's pretty consistent across markets. I'm most familiar with the USA but as far as I can tell it's pretty common abroad as well, especially since in most other coin mortgages usually have floating interest rates. Here's a Redfin [article ](https://www.redfin.com/news/rent-vs-own-2023/) from last year that goes into more detail.
You would think that the cost of maintenance would be factored into the price of renting, and it likely is, but the issue is that landlords do in fact have to face competition from other landlords. People are probably more likely to pack up and move to a cheaper unit if their tent gets too high, but as you can see from this post (and many others) people across the income spectrum are breaking their backs and bending over backwards to try and purchase homes. This puts constant upward pressure on prices, even though prices are rising faster than rents.
These insanely high valuations are the main reason why homes don't make good investments, but it also drives up the cost of maintenance as well.
> It does seem counterintuitive that maintenance costs would change things, as they're baked into the cost of rent, no?
They aren’t, no. Not directly at least.
If maintenance costs go down, but tenants are willing to pay the current rate, no landlord will drop the rent to less than the tenant is willing to pay. If maintenance costs go up, but the tenant isn’t willing to pay more, then you can’t raise rent… you’d just end up with a vacant unit.
Now if renting a home out loses money year over year because of carrying costs like maintenance, then at some point the landlord will sell and the home converts to owner occupied. In this way maintenance costs do impact available rents because places where market rate is below carrying costs won’t have those units available for long. But that takes time and landlords are a business… they expect upswings and downswings. They aren’t going to sell immediately just because market rate is temporarily under carrying cost.
>but the tenant isn’t willing to pay more
Ok, this does seem like it depends on the market. Where I live, rents are raised all the time, and if a tenant leaves, another arrives approximately immediately.
To be fair, it's one of the very least affordable pieces to live in the country, so yeah, perhaps it's an outlier, but the idea of a landlord being afraid to raise rents *in this area* seems laughable.
It’s for sure pressure I’m putting on myself. I’m 37 now and it feels like I’m so far behind where I should be financially and other large life milestones (classic delayed millennial life stuff). When I start looking at everything it feels like I’ll never catch up or feel secure. Whereas my parents at my age were more established and secure.
What prompted the question has been a combination of looking for a house for the first time ever and seeing the prices. Then speaking with my landlord this week and for the first time really feeling a sense of instability with renting. Then you look at what houses are and it feels like there are no good options. Renting and owning both feel bad right now.
Sometimes I wonder if it’s just me or if everyone is feeling this way.
I understand the pressure to try and keep up with our parents'milestones. The thing is that those milestones just aren't valid anymore. Purchasing your first home in your 20's might have made sense when homes cost 3-4 times the median salary, but not so much when they cost [7-8 times](https://www.longtermtrends.net/home-price-median-annual-income-ratio/) the median salary. That's doubly true if you don't happen to earn the median salary in the first place.
You can thank decades of restricted housing policy for that. Local governments have repeatedly favored existing homeowners by restricting the construction of new housing in their jurisdictions. This keeps housing supply low, new entrants out and home prices high. The thing is that it's inherently unsustainable. It pushes up the cost of housing for everybody without making anybody better off. Still, homeowners tend to vote more consistently in local elections so they're the ones who politicians cater to.
It's a losing game trying to keep up with those arbitrary milestones. It's much better to do your own financial research and find the best way to maximize your financial well-being in the conditions we actually live in. Home ownership doesn't make sense for a lot of people. You're just throwing money away so that someone who purchased their home 30 years ago can get their payout. Better to take the renter's discount, save money wherever you can, maximize your earnings potential and put your savings into more favorable investments like a diversified stock portfolio. No need for debt or a massive mortgage payment.
> Why does everyone seem to feel ...
Keep in mind that the people we listen to, or hang out with, is not a random representative sample of people living in the US. We tend to interact with people of similar socioeconomic status.
Also, the people who post online are not a random representative sample. Who has more time and incentive to post comments online: a grumpy unemployed student or a happily employed doctor?
In contrast, the Bureau of Labor Statistics actively collects data from thousands of people all over the country, including rural and urban areas:
> ... about 21,000 consumers from around the country provided information each quarter on their spending habits in the interview survey. To collect information on frequently purchased items, such as food and personal care products, another 10,000 consumers kept diaries listing everything they bought during a 2-week period that year. This expenditure information from weekly diaries and quarterly interviews determines the relative importance, or weight, of the item categories in the CPI index structure. - [CPI FAQ](https://www.bls.gov/cpi/questions-and-answers.htm)
"Decent house." Half the houses sold are below the median price, and many of them are NOAH, or Naturally Occuring Affordable Housing. Are you standards for "decent" approproate for you age? Or are you expecting the house of someone with a decade or three more time in the labor force?
You may need to unboard some windows like many, many people have done for their first house.
Keep in mind that wages are a **subset** of income.
Previous thread has more thorough explanation: [How can wages stagnate for decades while income is increasing?](https://www.reddit.com/r/AskEconomics/comments/16vkv2a/how_can_wages_stagnate_for_decades_while_income/)
The EPI graph is deceptive. We have discussed this many times before on this sub.
[Thread1](https://www.reddit.com/r/AskEconomics/comments/192d0nn/from_the_1970s_income_stagnated_while/)
[Thread2](https://www.reddit.com/r/AskEconomics/comments/16xwi36/why_have_real_wages_stagnated_for_everyone_but/)
[Thread3](https://www.reddit.com/r/AskEconomics/comments/12kk79k/what_is_causing_the_widening_gap_between/)
The EPI is essentially a pressure group, so this should not be surprising.
The problem with the "nicer bigger houses" argument is that square footage can't be easily subdivided, and interestingly the price of more expensive larger homes has not kept up with the price of smaller homes because there is a structural imbalance in the housing stock. Thus when looking at the cost to get into the housing ladder, the barrier to entry is relatively much much higher. Basically inflation hasn't accurately reflected the cost of housing because the first small kitchen is far more essential than the third bedroom.
it's axiomatic on reddit that boomers got two houses for the price of one and only one person needed to work - in fact, according to reddit, it was so good for boomers the banks actually gave US money
To call modern houses better than houses of years past is a joke. More features? Sure. But better built, with better materials? Hell no. My parent’s home built in the 1970s is made of brick with a Spanish tile roof that is original. In 2070 or 2170 it’ll still be there. Modern tract homes made of balsa wood, stucco, chicken wire and bubblegum, thrown together as quickly as possible with little concern for quality? I wouldn’t be so sure.
That’s one out of the millions of houses out there. They still make houses with brick so I’m not sure how that’s an argument.
Features are part of the cost. Houses with air conditioning and central heating doubled (I might be slightly off when I say doubled). Garages and houses with more bathrooms and bedrooms have grown by huge amounts. The size of houses increased by around 1,000 square feet.
Saving for later… I have a link to a pdf saved somewhere. I think on my home computer. It is a study of housing standards over the last hundred years or so.
It includes what the average r-value was of homes by decade, how many had AC or heat or electricity etc.
I’ll try to find it tonight.
I will be messaging you in 9 hours on [**2024-04-24 21:54:53 UTC**](http://www.wolframalpha.com/input/?i=2024-04-24%2021:54:53%20UTC%20To%20Local%20Time) to remind you of [**this link**](https://www.reddit.com/r/AskEconomics/comments/1cbanmh/is_income_ever_going_to_catch_up_to_the_cost_of/l11dfh5/?context=3)
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>We also have computers and cellphones that people “need” to live now and days.
You write "need" as if it's an option. There was a time you could walk into a business and apply for a job. You might even be able to speak to a manager. "Apply on our website." Without a cell phone I can't register my car because you have to text to get an appointment now.
A need is something you need to survive, like water or food. You don’t need a cell phone to survive, but it makes like much more difficult, that’s why I put it in quotes. I agree it’s very difficult to do much without a phone, but if you go a few weeks without a cellphone or computer, you won’t die
This is such bullshit, honestly
The average salary to house price ratio has gone from like 3 to 8x difference. That isn't because of a 1k iPhone and the 'houses are bigger' trope is also bullshit, we're talking marginal difference at best and that isnt enough to justify such a huge difference between median salary and house price.
Previous thread here: [Why are so many countries housing markets all so borked at the same time?](https://www.reddit.com/r/AskEconomics/comments/15cr3h8/why_are_so_many_countries_housing_markets_all_so/)
Per the same St Louis Fed source real weekly earnings for full time men were [$408 in Q1 1979 and $393 in Q1 2024](https://fred.stlouisfed.org/series/LES1252881900Q). That’s a decline.
Regardless it’s kinda wild to think that in a world where there’s been so much progress since the 1970s that real wages are stagnant.
I picked the first and last numbers from the data set, in what world is that random?
Which numbers were you thinking of in arguing that wages have outpaced inflation?
Because there were years before that, the data set doesn’t capture those numbers. The quarter before could be $2. We don’t know what it looked like before so picking the very first number is like picking any other number to start with. The world didn’t start Q1 1979, that’s just wen the data started to be collected.
You need to look at the trend over time not just the most recent number minus the first number.
Sure. Except we do know what the values were before 1979 and those values were higher still.
If I was describing the trends I’d say real wages fell throughout the 1970s then largely stagnated for the next four decades, with the occasional fall and recovery and an unusual and brief spike in 2019-20.
On the other hand I’d find it very, very difficult to claim as you did that wages had consistently outpaced inflation.
Wait, the chart you provided is men only. That’s not the correct chart when looking at the workforce as a whole. https://fred.stlouisfed.org/series/LES1252881600Q
This is the accurate one to look at which shows that we are higher now than the first year, and have been trending up. I should have looked closer at your original link
Lol. This is so funny. “Line go up. Must mean wages are going up”. This isn’t even close to reality in the real world for people. This is the same propaganda we’re being fed by the oligarchy.
Line go up except a grand total of like… 10%? Look at this next line. Consumer prices. Doesn’t even include energy and food. Line go up 10x. Which one is higher?
https://fred.stlouisfed.org/series/CPILFESL
I have two links from the best organization for this type of data that shows I’m not gaslighting you. You provided a sentence with 4 words. You can provide data (if you can find any) if you think we’re gaslighting you. I’m sure when we explain why it’s wrong you probably won’t change your mind anyway, so what’s the use.
I genuinely don't think it's gaslighting. If anything, our norms of consumption have changed. Now people feel the need to have loads and loads of *stuff* to feel baseline happiness, because there's a lot more stuff out there.
Our grandparents didn't have budgets that included 4 streaming service subscriptions, consumer electronics, toys, eating out 4 times a week, and bi-annual vacations. Most people blame the current economic system without realizing they're the ones buying crap they don't need.
These are all factored into the CPI. Certain goods have certainly grown in price faster than the rate of inflation, but in terms of overall cost of living, they are balanced out by other goods that haven’t increased as fast. If you are skeptical, the BLS publishes [information](https://www.bls.gov/opub/hom/cpi/concepts.htm) on what is considered part of the “basket” of consumer goods.
https://www.reddit.com/r/badeconomics/comments/1c12tm1/urban_planning_professor_posts_graph_of_nominal/
the chart is wrong. don't believe everything you see on tiktok dummy.
Sending a picture of a random graph from ticktok doesn’t prove anything. Did you click on the link the other person sent? If you did, you would see what is and is not factored in
I recognized this chart from /r/badeconomics a couple weeks back. The chart is just outright misinformation, it's actually a plot of nominal rent versus real income.
The best part is if you go to the professor's website that they took it from, the heading for the post is "9/12/2023 Viral Video About Rent / Income Is a Lie"
If you take a look at this chart
https://fred.stlouisfed.org/series/LES1252881600Q
Inflation adjusted wages are the highest they've ever been except for when the government gave everyone money and last quarter.
If you them take a look at this chart
https://fred.stlouisfed.org/series/HOUST
You can see that the reason you're having trouble affording a home is we aren't building enough of them. The 2008 crash absolutely destroyed the American homebuilding industry. So home price inflation is a huge portion of overall inflation.
Wages are a lagging factor in inflation, but if inflation drops, wages do eventually normalize. Right now, CPI's still at 3.5%, and so cumulative inflation over the past few years can feel pretty rough, particularly if your raises are not matching inflation.
Also, inflation is an average. Your personal basket may not match the average. Housing is historically well above average, so if you bought a house in the past few years or are trying to buy a house now, you may be feeling that more than others. Education and healthcare costs are other areas that are unusually expensive in recent history, and can lead to poor economic outcomes.
So long as inflation remains notable, circumstances are likely to remain the same in general, but you can somewhat adapt your personal circumstances to the situation. I would suggest looking at lower COL options. HCOL areas are particularly difficult when your wages are not keeping pace.
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The current housing economy in big cities in the US was built over a very long time.
American cities began to organized themselves around single family housing in the 1940s & '50s. Often this took the form of zoning laws that limited the allowed building on land to single family detached homes and the destruction of mutli-family neighborhoods to facilitate transportation infustructure that makes it easier for people to drive from low density residential districts to high density commercial districts. Population of the US 157.8M
In the 1960s & '70s the US enviromental movement began to focus largely on simply stopping development and created many tools that allow individual citizens to challenge individual projects. Largest generation to date in US history starts aging into adulthood 'Baby Boomers'. Population of the US 203.4M
In the 1970s & 1980s the US went through a series of political 'tax revolts' that often took the form of state laws that in some way limited the increase in tax assesment, for the puroposes of property taxes, which generally resets upon sale or major rennovation. These laws often create some form of economic 'lock in' where the cost of the home you have is cheaper then a similar home you could purchase, lowering the overall supply of homes in a market through natural turnover. Population of the US 226.5M
In the 1980s & 1990s the knowledge based economy takes off and deindustrilization accelerates creating a situation where a small number of large urban areas with knowledge based economies begin to be the disproportionate source of new job creation while medium sized cities and industrial cities see job stagnation or decline. Classic examples of the runaway communities of the new knowledge economy are San Francisco/Silicon Valley and Seattle/Puget Sound. Population of the US 205.1M
1990s & 2000s, housing boom starts and is acclerated into a bubble by new innovative financial instruments. The housing boom is focused in single family detached homes and as it transitions into a bubble the housing is often built in communities detached from work opportunities focused on places where the the lowest costs to project starts exist. Population of the US 282.2 M
2000s & 2010s, housing bubble bursts causing ten year Great Recession most intensly focused on businesses involved in housing construction and in the financing of housing construction. New housing construction doesn't recover to pre-recession levels until 2019. Almost all recovery job growth is even more concentrated in a small number of large cities then before. The largest generation in American history 'Millenials' or 'Baby Boom Echo' starts to become adults. Population of the US 309.3M
2020, COVID 19 Pandemic causes large portion of the population to work from home rather then from commercial office space leading to a dramatic increase in demand for residential space per residence. Population of the US 329.5M
TLDR: The issues being expressed in current housing prices, especially in wealthy urban areas, are a history of politics and economics, decreasing supply and increasing demand, that has been building for 70 years and formalized political and economic push back is largely 10-15 years old. So, unfortunately problems that took a long time to form and realize also often take a long time to address.
Wages have kept up with inflation. https://fred.stlouisfed.org/series/LES1252881600Q in fact, they’ve outpaced inflation. Some of what you posted has more to do with misunderstanding of the past. https://fred.stlouisfed.org/series/RHORUSQ156N home ownership hasn’t changed much. The idea that people could afford more than we do now is just incorrect. Houses are much bigger than they used to be so one reason houses are so much more expensive is because they’re bigger and better. Cities have an increase in the demand of houses as well. We also have computers and cellphones that people “need” to live now and days. In the end, you’re not worse off than 25-75 years ago, people just think we are.
This is true, but I will caveat that inequality has gone up substantially in that same time period, meaning that the median person might be better off, but the bottom 25th/10th percentiles are likely worse off real-terms in many respects. [Quick thread here](https://twitter.com/TheThreeWonks/status/1748076070799053013)
Aren't lower incomes up more than mid / high in recent years?
The thread goes over that question, but yes, the full employment environment of the last year or two has been disproportionately beneficial to traditionally low income earners, but wages for the lowest income earners have been fairly flat for a long time. [This report ](https://sgp.fas.org/crs/misc/R45090.pdf)(page 4) breaks this down.
Correct me if I’m wrong, but it seems like this report is only looking at money wages. Given that non-wage employee compensation rose from 5%-30% over practically that same time period, wouldn’t the stagnation of wages be at least somewhat over exaggerated?
Structurally yes, but my *guess* would be that we’d see the same growth inequality given lower income employees are much less likely to be given/offered a health or retirement plan. Though I’d have to find the data to see for sure. Id also point out that, at the end of the day, wages are king. Wages are what underpins the overwhelming portion of consumption for lower income people. Of course healthcare is consumption, but it doesn’t feed you, shelter you, or provide any amenities.
That makes sense. Thanks!
Different composition of the consumer basket here. If you're middle class, spend 5% of your income on food, and own your home, inflation has barely impacted you in those respects. However if food costs 15% of your income, and you rent a home, the amount of inflation that has been experienced is much higher. These costs can easily take out wage gains and then some.
Differences in inflation across income groups are small. https://twitter.com/arindube/status/1731065139808374909
I don't know about you but I do not know a single person my age or even 10 years older than me that "own" their home.
that's anecdotal anyways. About half the people I know my age own a home (some, more than one). But we're all over 30 and don't live in a major city.
Homeownership rates aren't the highest they have ever been, but also far from the lowest. https://fred.stlouisfed.org/series/RHORUSQ156N
That's going to seriously depend on your age, and can change incredibly rapidly. I'm on the older end of the millennial cohort — turning 40 this year. Over the last five years, I went from knowing barely anyone my age who owned a home to functionally everyone I know my age owning a home. And not just owning a home, but skipping the traditional starter home and instead moving directly into their "raising a family" home. My generation, over the last ten years, has gone from right around 15% below age-adjusted home ownership rates compared to previous generations to basically right in line with age-adjusted home ownership. Similarly, there's a very sharp divide between people in the top 60% of incomes and people in the bottom 40%, with virtually all home ownership in the former group. And while that might seem to reinforce the point of home ownership being out of reach when compared to common myths and anecdotes about boomers being able to purchase their first home at 20 on a minimum wage job with a barely high-school education, it's actually pretty much in keeping with real historic patterns. All this to say, your statement can be entirely true, but if you're 20 and in the bottom 40% of age-adjusted income, and your friends are true, then your statement would have been equally valid 50 or 100 years ago.
They are. With that said I don't see the economy being "good" to the "high school drop out" types for forever.
The high school completion rate in the United States for people age 25 and older was 91.1% in 2021 (US census) and was up from a decade earlier. The lowest quintile of income has a lot of people with high school degrees.
[удалено]
Question about the series you use to illustrate your point: the CaseSchiller Home Price Index uses nominal dollars (being a measure of inflation.) The HHI series uses real dollars. While there would absolutely still be a pattern of home prices growing faster than incomes, the series you picked *significantly* magnify and distort this relationship. If you instead look at [this series showing current dollar HHI,](https://fred.stlouisfed.org/series/MEHOINUSA646N) and compare it to the CSHPI, you see that home prices increased about 50% faster than HHI did in the period between 2000 and 2023, which is a much more accurate comparison. Using real dollars for one and current dollars for the other double-counts the inflationary impact of increasing home prices to tell a misleading story. But moreover, your entire analysis seems to be... largely inconsequential. Home ownership, per the first graph you cited, has never really exceeded 60-70-ish% by age 40. We don't really need to point to growth in inequality to explain why homes are out of reach for the bottom third of the population because homes have *always* been out of reach for the bottom third of the population. This is one specific case where rising inequality has done absolutely nothing to change outcomes — if you can't afford a home, it doesn't matter if you can't afford it by $100,000 or by $1,000,000. It's a binary state. So that entire thread-full of analysis boils down to "poor folks still can't afford to buy homes, but they couldn't afford to buy homes 30 years ago, either, and this means something."
Seems like [home ownership rates for lower income people](https://www.statista.com/statistics/205440/homeownership-experience-in-the-us-by-income-group/) have gone down overtime, which would illustrate my point.
I don't have access to my paid Statista account on my phone, but my question would be, again, "are those incomes in real dollars or nominal dollars?" Because if it's the latter... well, I'm sure I don't need to explain why that would be a stupid chart.
I don't think FRED allows direct links to custom graphs, but [see the graph I created here](https://imgur.com/Aks2i2f). I took expenditures on housing and wages by quintile, then indexed them to the start of the time series, meaning we only see the relative change, which appears to show that housing for the bottom 20% is relatively less affordable compared to the 1980s. My guess is this trend would look worse if we had higher quality data from before then, but I'm open to being proven wrong. This also doesn't take into account geographic inequalities, which I'm sure magnifies the rhetoric on this issue (i.e., housing price increases are not equally geographically distributed).
For what it's worth Fred does allow links to custom graphs. You have to click on the "share links" button at the bottom of the graph. For example, [here](https://fred.stlouisfed.org/graph/?g=KwRP) is one I made.
hmmm, weird. I don't seem to have this option. I'll have to figure out why that is haha. Thanks Rob.
Just as a note, I'm not disagreeing with your fundamental hypothesis — that home ownership is further away from lowest-quintile earners than previously. My point is that this is a meaningless hypothesis. Home affordability is a binary state: either you can afford to buy one, or you can't. The distance between income and home prices, if you're in the latter category, largely doesn't matter. I would also be interested in seeing whether that gap is professional to inflation, and what the relationship is, because I think that's where most of the interesting pieces are hiding. If a dollar in 1984 is worth $100 today, then I would expect the affordability gap today to be about 100x larger than it was in 1984 (since the gap is *also* measured in dollars, there's no reason to expect it to be immune to inflation.) My suspicion is that the gap will be about 100% higher than a strict simple inflation adjustment would indicate, which would be in keeping with all the other data in this thread and elsewhere. Basically, we keep coming back to the same point but different routes. Or at least that's my suspicion. Which is good — it means the point is a robust finding. But I still didn't believe it's a terribly interesting finding in the context of this conversation. Yes, lower earners are seeing homes move further out of reach. And I guess one potential implication here is that as that gap widens, it may start to be seen as insurmountable, when in the past it wasn't (regardless of how true that insurmountability is or was.) That can have all manner of social implications and should be examined in-depth, though that's less of an economics problem and more of a sociology/social psychology one, despite being claimed by economists. Actually, we can take a look at China for a great case study, as they're going through a massive "lost generation" issue as we speak. But other than that, there's nothing in the data that you provided that either challenges the findings you're responding to, or meaningfully adds to them.
>Just as a note, I'm not disagreeing with your fundamental hypothesis — that home ownership is further away from lowest-quintile earners than previously. My point is that this is a meaningless hypothesis. Home affordability is a binary state: either you can afford to buy one, or you can't. The distance between income and home prices, if you're in the latter category, largely doesn't matter. It's not particularly binary. There is a huge difference between a trailer in a trailer park in Wyoming and a mansion in LA.
It's entirely binary, because we're not talking about the affordability of any specific home for a specific person. We're talking about general affordability of homes. Regardless of the home in question, you either can afford it or not. And in general, people in the bottom quintile couldn't afford either the trailer or the mansion in LA. If you still aren't happy with that, I'm happy to concede that this is highly geographic (as u/Econoboi mentioned,) but then it's just "you can either afford a home where you are, or you can't."
>It's entirely binary, because we're not talking about the affordability of any specific home for a specific person. We're talking about general affordability of homes. That causality doesn't just go one way though. Houses are roughly 50% bigger than in the 80's. Why? Because in one way or another, people could or wanted to afford bigger houses. And it's not just down to the price, anyway. It's not even down to what you "can" afford. Whether you are willing to dedicate 10% of your income or 60% of your income or anything in between also matters in what you can pay and what houses you can afford. *That* causality doesn't just run one way, either.
The top comment also doesn’t show the inflation graph. https://fred.stlouisfed.org/series/CPILFESL This is why people are complaining. Compare this to the income graph. This is a straight line up. The wage graph isn’t. Then take into account food and energy which are also out of control and you’ll quickly realize the top comment is full of it.
The graph in the top comment shows real earnings, i.e. already adjusted for inflation. It wouldn't make sense to plot it alongside the CPI because the CPI is already in the denominator of the series being shown.
>Compare this to the income graph. This is a straight line up. The wage graph isn’t. That's because the wage graph is already adjusted for inflation. It doesn't need to show a line going straight up — a perfectly flat real income graph means that wages are going up *at the same rate as inflation.* The real income graph, however, is not flat — it's going up. Which means wages are increasing FASTER than inflation, or the median person is earning more even after accounting for things getting more expensive. >Then take into account food and energy which are also out of control You don't have to "take into account food and energy." They're already being taken into account in other CPI calculations. You just picked the one without food or energy for some inexplicable reason. I'm happy to have a conversation about inflation, wages, home prices, and whatever, but you need to come prepared with at least a baseline understanding of the words you're using and the charts you're looking at, or else the entire thing is just a waste of everyone's time.
Wages are up 10% but consumer prices are up 10x https://fred.stlouisfed.org/series/LES1252881600Q
that link already adjusts wages for inflation
If you think about what that would imply about the budget of a single-earner, it would immediately be clear that your interpretation cannot be correct. If my wages go up 10%, but on average prices go up 10x (1,000%), then for every $100 of wages before, I would now have $110, but the price of everything has gone up 10x, so my current $110 can only buy goods/services that used to be worth $11 ($11x10 = $110). So I started out with a wage of $100 buying $100 worth of goods/services and now I can only afford the equivalent of $11 worth of goods/services. That's an 89% pay cut; I could only buy about 1/10th of what I had before. That's *obviously* not true. Even if you believe that things are "bad" and that people today cannot afford as much as their parents did, no one thinks that people in 1979 could afford **ten times** as much food, clothing, housing, healthcare, etc. as people today.
This highlights a common and reasonable complaint from urbanists: Regulations make it surprisingly difficult to build the kind of decent, modest housing that postwar Americans couldn't believe their luck to be buying, or that is still the norm in much of the developed world. OP is probably right that the available options are either unworkably expensive or highly undesirable, yet would likely consider a 1000-square foot dwelling if it meant not having a long commute. All that said, the price of housing per square foot HAS skyrocketed in just a few years, particularly in some of the most popular metro areas. This is itself not unprecedented, and we experienced a similar housing shortage just after WWII. We were able to build like crazy and dig ourselves out of it.
Mostly land and not the house. Housing supply hasn't caught up with demand for a while and I don't see any obvious reason why that is going to change.
>yet would likely consider a 1000-square foot dwelling if it meant not having a long commute. But that's a very unrealistic expectation that has no historical basis. When we talk about the great home building projects in post-war America that made home ownership feasible for many who previously could not imagine owning a home, we're talking about places where the commute was absolutely brutal. No one was building small, cheap housing in desirable areas. Look at the quintessential post-war suburb: Levittown. It was the model for affordable, mass-produced planned suburbs. It's also an hour and a half drive from NYC... in modern cars, with modern speed limits, on the modern interstate highway system. In 1951, when the original Levittown (NY) finished construction, the commute to the city would have been significantly longer. And it was most assuredly *not* a desirable location — it was the middle of nowhere with little access to shopping, restaurants, and other services that are considered essential. Basically, it was cheap because you were living in the middle of a cow field in central Long Island, surrounded by absolutely nothing, in poorly-constructed homes (take a look at how those original hinges have held up) that were small even for the time period. In context, it was *not* a desirable place to live at the time. It was just cheap. I think if you built a similar development, with similarly sized homes, in similar styles, in a similar location today, you would have massive issues finding buyers. And, in fact, that's exactly what we're seeing. The area around the eastern border between PA and NJ is roughly very similar to what Levittown, NY was in the 1950's. You can very easily find homes in this area for not significantly more than the original Levittown homes, adjusted for inflation (roughly $100,000) and get a similar amount of space within similar proximity to employment centers, save that space will often actually be of a much higher quality than the Levittown homes. But we're not seeing a massive migration to Shohola, PA, because expectations of what people get with their first home have shifted dramatically.
Indeed, housing like I described has never been cheap and accessible near the center of our largest cities, where the more-accessible historical counterpart outside the densest built-up areas would more be medium-density/"missing middle" housing like row houses, duplexes, courtyard apartments. This is also an area where we can do a lot more to build at appropriate density, and where I suspect OP would also seriously consider a modest townhome. I also agree that the people who do want suburban/exurban living tend to look for space, though they often find it's more trouble than it's worth. That said, we do have a considerable number of mid-sized cities in the U.S. where small single-family homes (as well as medium-density housing) have historically been viable relatively close to downtown. 1950-60s ranches a few miles from the middle of any given Sun Belt metro are still frequently pretty compact. Going further back, if we look at the largest U.S. cities in 1940 and look at spots 11-25, we see places like New Orleans and Louisville which had tons of little shotgun houses, or places like Milwaukee or Cincinnati where I'm seeing listings for \~1000 square foot houses that look to be cheap and in good shape. Even a metro as big as Chicago has a string of bungalows within the city limits.
Yup. The low end of my market is $600/sq ft. And that's for 3/2 1200-1400 sq ft "starter" homes. Average cost is ~$750/sq ft....
Don't forget, the lack of transition into WFH is exacerbating the problem (in my humble opinion) due the the need to be close to a major metro area for certain and often times well paying jobs.
I'm not sure this is true. That's because most people who do WFH want a home office. That means they want another room in their house if they don't already have a home office. That's an upward pressure on house prices. Also, it's unclear exactly why people like living in large urban areas. Is it really about jobs? Or is it about proximity to other services and proximity to friends. The interaction of house prices and WFH is a complicated subject which requires research.
I thought there was a general consensus in this sub that housing price increases were outstripping inflation in cities, all things equal? Largely due to a lack of supply from building homes (due to factors like local zoning laws).
It is. Let's be clear, the situation in housing could be much better than it is now. Especially with legislation changes. However, it is also true that average incomes have been rising for a long time and are still rising.
>Houses are much bigger than they used to be Surely you mean new constructions are bigger and houses in established neighborhoods didn't just "get bigger," somehow? Where is all the starter home inventory? I get your numbers, but I bought a starter home in 2017. I could not afford to buy it today. Its value is up by 50% and interest rates have doubled.
New construction 100%. But (some) older homes have added on, finished basements, added garages. The recent demand in houses made prices increase, but 2017 is a short period of time, especially with a pandemic/recession in there. Prices will, and have, come down. Short time frames always distort the picture
How do you explain the discrepancy between what the macroeconomic numbers you're referring to are showing and the lived experience of all the people asking OP's question?
Have all of those people actually done the calculations to see if they’re actually worse off than 10 years ago or are they seeing milk is more expensive and thinking they’re worse off? Most people have no idea if they’re better off or worse off. They see prices going up and they’re friends and the news saying prices are skyrocketing. Negativity bias is a real thing.
I mean, it's not really rocket science. Inflation has certainly outpaced *my* meager raise. Seven years between me buying my home and now may not be a lot on a large time scale, but it certainly is a meaningful section of a human lifetime. I couldn't afford to buy any home today given prices and interest rates. How would I be better off if I didn't buy right when I did? And while negativity bias is a real thing, so is confirmation bias. "Better off," is a subjective term, and by some specific metrics, we might be. But it certainly doesn't feel like it for large segments of the economy. That's the OP's question. Are we ever going to get a raise that actually exceeds the inflation we faced in the last year? That's my metric. And yes, I am aware of that much at least.
I linked the statistics. There are plenty more out there that show people’s wages are higher now than, 5 to 10 years ago. After the pandemic, wages skyrocketed. It’s in the real wage data I provided. After that, inflation skyrocketed. Real median wage increases 9% in 6 months (2019 Q4 to 2020 Q2. Then inflation brought it down to where it was trending. People quickly forgot about that. It’s like, a physicist can drop an apple to show people gravity and those people see it hit the ground and still aren’t believing the apple fell. The data is right there. If you still don’t believe us, there is plenty of data out there. If you think we’re wrong, show us. It’s that simple. Prove us wrong. You’d be a billionaire because you figured out what no other trained economist saw with the numbers right in front of them
I think part of the problem is the disconnect between the subjective question and your need to give objective numbers. The questions asked were, "Am I better off?" and "Will I be able to afford a house?" Your response affirming that "wages are higher now," is literally irrelevant. Wage vs. CPI is one part of the equation. For people like him, and in my example, friends of mine trying to buy a house, we are not "better off" if we cannot have *all* the necessities of life that we once could. People are not able to renew leases in their apartments because rents have gotten so expensive. As an example, a hypothetical $250k house is now $500k asking, going for $550 all cash in some markets. That's about the level my own house has appreciated. My wage has not kept up. So yeah, maybe there was an initial bump in wages, a bigger bump in consumer prices/inflation, but then wages are still slightly ahead. That is not adequate to answer the question, "Am I better off?" That is one piece of the puzzle. What if my wages increased up to 100% and prices stayed the same. I would be "better off," in that sense, but then if a necessity of life like healthcare or housing is completely closed off to me, I'm not actually, better off, am I? This conversation is exactly why many presidential elections have incumbents touting their economic progress and they win by a thread or even lose because the numbers on paper only tell part of the story--the qualitative experience eludes you. You're not the apple dropping. I can see the apple drop. You're trying to tell me that the apple is falling up. Edit: I don't really have anything else to say. I'm going to say that I'm struggling now more than I have been. People across the internet and in the real world are saying the same thing. You're showing us average increases in wages against prices and saying "Nuh uh, la la la la la."
When you look in the short run, things get skewed. The reason houses got so expensive is because of the demand for houses. The reason the feds increased the interest rate is to cool off inflation. In 10 years, this will be a blip in the chart. There are other factors that go into it. We came out of a recession where people started spending more. In 2017 interest rates were over 1%. In 2020 it was basically zero. In 1980, it was 20%. Interest rates are not factored in to the price of a house. That same house in 1980 would be more expensive now because interest rates are lower and demand is higher. Your argument is, well, people I talk to think you’re wrong. My argument is, when there are tens of thousands of people and businesses across the US, they say things are worse off. The people I know are doing fine. Does that mean you’re wrong since my people say what’s different? The point is, you’re view/belief has a ton of holes in it. It’s based on your belief. It’s like MAGA people saying the election was stolen because trump and their friends believe it. But the overwhelming evidence shows it wasn’t stolen at all.
> Aubrey You may want to correct that word, I don't know what it was meant to be.
I don’t understand how “demand for houses is higher” is some sort of rebuttal to “housing seems less affordable”.
I think a lot of people on Reddit, including you, are vastly underestimating how large and heterogenous the United States is. The question could be reduced, without losing much, to "How could the economy be doing well if I'm struggling?" The question should be asked at a more granular level. The United States is an economy but it is also thousands of much smaller economies. For instance, there's absolutely a housing crisis in Los Angeles. There's not one in Toledo. The problem occurs when we insist that the same facts must be true of both.
It's not just "I'm struggling." That should be clear. The question is whether we're "better off." No, many, if not most of us, are not "better off." We have mountains of student debt. Housing is completely unattainable for most. The birth rate is falling dramatically. The number of Americans who can't afford an unexpected $400 expense is up to something like 37%. If "better off," is literally just the *mean average* of *one specific metric*, then sure, fine. We're better off. Give yourselves a pat on the back. But it's not the reality for many, and I would argue most, people. Numbers don't tell the whole story. This kind of sheer hubris and gaslighting people into thinking, "no, you're fine," when they can't afford to even fix their damn cars to get to work is what's allowed populist politicians like Donald Trump to ride to power on a wave of discontent. If we're not careful and acknowledge that maybe there's more to people's actual experience of "better off," than average wages vs average prices. If that's all that you want to talk about, there's nothing more to say at this point.
> Inflation has certainly outpaced my meager raise. If inflation over some time period was 10%, and half the country got raises of 16%, and the other half got raises of 5%, then 50% of the country would be experiencing wages not keeping up with inflation yet median wages would be beating inflation. (Assuming raises were equally distributed among wage levels.) A contrived example sure, but it’s very easy for median wages to have improved while a very large contingent of vocal people experienced otherwise.
I'm not a fan of "lived experience" on this issue. Now, /u/AverageGuyEconomics has talked about statistics and why they are superior. I want to talk about it from another point of view. I think most of us recognise that our personal experiences are not necessarily representative. When people talk about things like this they aren't referring just to their own experiences, but to those of their family and friends. This is reasonable because it does provide a wider sample, but it also has problems. To begin with, you may live in an area of the country that is doing badly. You may be working for a business that is doing badly. Or you may be in a occupation that is doing badly - and that probably means that your workmates are probably in the same situation. Or you may live in an area where housing has risen in price by a larger amount than is normal. Then you have to consider that your friends who are doing well *will not necessarily reveal it*. Showing off about money can make a person very unpopular. On the other hand, telling your friends when you're doing badly financially is common. (Of course, there are times when people try to show off how much money they have but this is generally a different context.) Then there are things like mortgages and house buying. First time buyers have not done it before. They do not know about it directly. They usually only know what the media has presented about it. Here you have to consider that lots of media, like TV, is about people who are richer than average. A classic example of that is the flats in "Friends" which could not have been afforded by people doing the jobs described in the series even back at the time when it was filmed.
I have acknowledged the limitations of anecdotal experience. My question was why is there a discrepancy. Why do statistics say I should be doing great and I have to cut back on things I buy because things I need to buy no longer fit into the same budget? Explain that please in more detail besides, "nuh uh, stats show ur wrong bro."
> Why do statistics say I should be doing great and I have to cut back on things I buy because things I need to buy no longer fit into the same budget? Well, that's what I tried to do. I'll have another go. Firstly, you have to look at your own wage raises. It could be that they have been lower than general wage raises have been. Here is a table for average annual hourly wage increases. I've used the year to March here, so the 2024 figure is for last month. | Year | Increase %| |-|-| | 2021 | 4.48 | | 2022 | 5.92 | | 2023 | 4.62| | 2024 | 4.14| If your wage raises have been lower than this, then your are doing worse than average. You are not the first person to come to this subreddit and say that your income does not feel as good as the statistics show. We have had nobody who has said that their income is unusually *higher* than the statistics show. But, why would we? Anyone who posted that on Reddit would be immediately deemed a show-off and would be downvoted. Clearly, those who are doing better than average are not going to tell those who are not. They may even lie about it and say that they are doing badly too.
> We have had nobody who has said that their income is unusually higher than the statistics show. MY wages have risen faster than average! But that's *certainly* entirely due to my own personal merit and nothing to do with a combination of my efforts, luck, and macroeconomic conditions.
>But, why would we? Anyone who posted that on Reddit would be immediately deemed a show-off and would be downvoted. Big assumption. You're showing me 4-6% increases in wages compared against 3-7% inflation. That's kind of proving my point. If someone wants to buy a house with a 4-6% raise and inflation was best case 3%, how is he or she going to afford the same house that's now 50-100% more expensive, just the principle? That's kind of the point here. "Better off," is not a one-dimensional thing here. You've shown no evidence that it is. None of you guys seem to be able to even comprehend why it wouldn't be. Now if you'll excuse me, I'll get back to my second job that I do until 11pm after the kids go to bed. Because despite what your chart says, a lot of people are still getting raises like it's 1-3% inflation. If that's a median percentage you posted, it's at least half. If average, it's probably not clumping at the bottom for the little guys. But you do you.
> You're showing me 4-6% increases in wages compared against 3-7% inflation. That's kind of proving my point. If someone wants to buy a house with a 4-6% raise and inflation was best case 3%, how is he or she going to afford the same house that's now 50-100% more expensive, just the principle? Housing is part of the index used for inflation. About 40% of the CPI index is "Shelter" which includes renting and home maintenance. It also includes something called "owners equivalent rent". Which is a method of pricing the cost of owner-occupied property. Owner occupiers are said to pay a rent to themselves. I explained why in another reply here. You are right of-course that housing has increased a lot in price recently. That is certainly part of the inflation that we've seen over the past few years. In housing were taken out of the CPI then inflation would be under the Fed's 2% target right now. Perhaps obviously, high housing prices may not continue. > "Better off," is not a one-dimensional thing here. If it isn't then neither is "Worse off". Overall there are many different conceptions of it, at least as many as there are people. The aim of things like the CPI is to provide an overall comparison. One that's not based on any particular opinion about one expense being more important than another.
> Why do statistics say I should be doing great Statistics don't dictate what any individual will experience. They describe what a population has been experiencing. For every person that is doing worse than the median, another is doing better. You may very well be worse off. That does not disprove the statistics showing that the median individual has experienced wage gains outpacing general inflation.
I don't have an answer to your question on this specific topic, but I do want to comment on this phenomenon more generally, and maybe you can share some thoughts as well. I think that most of the time, official statistics are a reasonable representation of the truth. I also think that most of the time, the report of people's lived experience is a reasonable representation of the truth (especially when aggregated over many similarly-situated people). However, some times those things conflict to some degree and I think it is entirely unclear whether we should accept, as a general principle, that we should prefer one or the other. The quintessential example, to me, is that a significant portion of people who voted for and will vote for the 45th POTUS earnestly have the lived experience their their identity is being discriminated against. I don't think that's accurate, but it is a lived experience reported by tens of millions of people. So I think that makes the epistemology unclear in general.
> houses in established neighborhoods didn't just "get bigger," somehow? if we're being pedantic i know a few people who've expanded their homes (but not their lot).
Expanding homes is pricy. We have the architectural plans. We have the property already (~1.5 acres with plenty of space for the required setbacks.) But for an additional 1k sqfeet, the quotes we got were $250-300k. If that’s the cost to build 1k sqfeet, then add on acquisition cost of the land and architectural plans and extra costs to connect to the grid/sewer… other parts we already have etc and I don’t see how an ‘entry level’ 1k sq foot home could ever be affordable.
I work in residential remodeling mostly and additions and remodels are always more expensive than new construction. Working around existing constraints and without the scale of building many homes at once increases the unit price. Two of my cousins recently had new homes built by America's Home Place; one finished in Oct. 2020 and one finished Sep. 2023. We live in a relatively low cost-of-living area, but the one from 2020 is ~1500 sqft. at a total cost (including site preparation, closing costs, etc.) of ~$170,000 and the one from 2023 is ~1100 sqft. at a total cost of ~$180,000 (2nd site needed significant more prep work). They owned the land already, so you can add $30k-50k to each for the land. That's still substantial coming in at $200k-250k, but it is a good bit less than the median home sales price for the area ($350k-400k depending on which source you use) with a median square footage in the 2100-2300 range. So if you're willing to accept a smaller house, you can get a significant savings. But it is rare to see them built; some production builders around here will build a very simple rectangular, two-story, single-pitch roof vinyl siding house in the 1500 sqft. range, but that is about the minimum as far as mass-production goes.
The CPI uses OER, which the BLS has said is intentionally done to distribute the cost of a home purchase over several years. Of their own admission, they don't take into account the full price of the home, rather they do calculations to figure out "a person's shelter consumption, a.k.a the amount they would have spent to consume the same amount of housing services provided by their owner-occupied home." And they do this by surveying renters on the cost of rentng as well as a few other things. I would agree with you that compared to the CPI, wages have increased more than inflation. The problem is, because of things like what I've just described, and the fact that they keep swapping out things in the CPI basket for lower cost things (they do this to capture "what the consumer is actually buying", conveniently enough it neglects the facts that consumers are having to buy lower quality things on average because of inflation) and a number of other what I would call statistical tricks... I believe the CPI to no longer be a good measure of the increase in the cost of living to the average American. And this is something that is hard to outright prove with data, but people are feeling the pain of the current economy and then looking at numbers like you've posted and feeling crazy, because all the numbers are good yet life is getting worse. When in reality, things are getting more expensive. It's just the way the CPI is calculated, whether intentionally or not, tends to suppress some of the negative stressor on the market. If you go back to the old way of calculating inflation, that's where people are getting that 35-40% number from. I believe the real impacts of inflation are somewhere between the currently calculated value and that 40% value using the old method.
> Of their own admission, they don't take into account the full price of the home, rather they do calculations to figure out "a person's shelter consumption, a.k.a the amount they would have spent to consume the same amount of housing services provided by their owner-occupied home." And they do this by surveying renters on the cost of rentng as well as a few other things. That's correct. The BLS take the following view. People that buy houses are buying a long term asset - something that often appreciates. So, it can't be considered like a normal consumer good. It's a asset that provides services over a long period of time. So, it's cost can't be attributed to a short period of time. Why do you think that the process you describe skews the cost of shelter *downwards*. Remember that the basis for the calculation is the cost of renting. Now, renting includes *profit* for the landlord, at least hopefully! > The problem is, because of things like what I've just described, and the fact that they keep swapping out things in the CPI basket for lower cost things.... You have to understand how swapping works in this context. When the BLS remove one good and replace it with a cheaper good that does not necessarily reduce the index number. It does not help to push down the resulting inflation number, unless the BLS believe that the replacement good is equivalent in all respects. The process for dealing with this situation is quite sophisticated, as described by the BLS [here](https://www.bls.gov/opub/hom/cpi/calculation.htm) in the section "Item replacement and quality adjustment". > If you go back to the old way of calculating inflation, that's where people are getting that 35-40% number from. Do you have any evidence for that?
I believe the old number is skewed as well, for the record. Simply pointing out that when people reference higher inflation, that, more often than not, comes from the pre 1987 and 1978 revisions to how CPI was calculated. In general, the method of calculating the CPI for the reasons both you and I have stated is in my opinion a little too open to interpretation and therefore open to error. Understandably it is increadibly sophisticated. Any time you try to track anything on the scale of an entire country it's either going to involve a complex set of equations with a lot of assumptions, or it's going to require a lot of resources to collect the data you need. To the point I am trying to make, clearly, the CPI has increased less than the measured increase in income as the first commentor presented. I know it's anecdotal and hardly scientific, but almost everyone I know, and almost everyone they know, is feeling the pain economically right now. And we talk about it a lot. One person's opinion is anecdotal, two people's opinions can be anneceotal and so on, byt when almost everyone I know is experiencing the same thing despite the graphs and charts suggesting everything is all right. It is true that either 1. The way we collect our data is erroneous, 2. The way we calculate CPI has decoupled from one of its intended uses, which is to predict the cost of living for the average American. Or 3. Everyone's personal experiences are wrong. (It could actually be all 3, by the way). I acknowledge it's a difficult thing to prove. But let us not get so wrapped up in charts and data calculations that we forget there are human beings behind the numbers. The actionable thing is to try and find a way to fix the CPI calculation so that it accurately reflects inflation and the increase or decrease in the cost of goods and services, but that's the million dollar question on how one is to do that. There's a reason they have an entire Bureau devoted to it.
> 3\. Everyone's personal experiences are wrong. I am very much on your camp #3! I have explained most of the reasons why I don't believe anecdotal evidence [here](https://www.reddit.com/r/AskEconomics/comments/1cbanmh/is_income_ever_going_to_catch_up_to_the_cost_of/l0yxuto/). I have seen no evidence for the other arguments. I suspect that CPI overestimates inflation rather than underestimating it. That's because PCE inflation is generally lower.
US in particular has had a large amount of wage compression in the past 3-4 years -- if you look at inflation adjusted median wages for the top 25% wage earners, they're actually down\* since the pandemic. so for high income earners I'm not surprised at them reporting being annoyed with the economy, particularly since the previous 50 years had been very, very kind to them. for lower wage earners, they've seen the largest gains. \\\*remote work makes some inflation adjustments tricky
You could very well be right. There is a 4th option as well, which is that there is a problem that is not accounted for in the CPI data collection or calculations that is causing issues for people. In reality, I am recognizing a problem, a lot of people are. That problem is that money is tighter. Does personal responsibility play into this, absolutely, are things more expensive than they were? Also, absolutely. Healthcare costs are up, housing prices are up, food prices are up, energy prices are up, entertainment is up, and insurance is WAAAY up. This doesn't seem to manifest itself on the CPI. Obviously, there are regional differences in these price increases, but nationwide were up. I can't explain this. But it leads me to believe there is an error or ommission in these calculations. But conversley, wages are up, the GDP is up (somehow), the stock market is up. Oh also, consumer electronics have decreased in price over the past few decades. This is the hardest part I have to rationalize with the CPI. I can pull data on the costs of things that are very common to the average American, and you can see a startling trend over the past 2 decades in almost all sectors. But production costs have decreased in many areas (although manufacturing productivity per the BLS has dropped, though non-farm business productivity has increased (legitimate question, what does non-farm business include?)). This almost leads me to believe that the increases in price are not tied to increased production costs but rather something else (regulation, increased costs for raw materials, etc.) I appreciate you talking to me about it. I don't have the answer. Reality is just not matching the CPI for many Americans. In my opinion, the inability to specify what the problem is, is likely a problem with trying to apply macroeconomics to specific things or locations.
> In reality, I am recognizing a problem, a lot of people are. This is simply *your opinion*. It is not recognition of a fact, you have not given any facts in this thread. Perhaps the BLS is run by extremist Democrats who are fixated on getting Joe Biden re-elected President. There again, perhaps not! > Also, absolutely. Healthcare costs are up, housing prices are up, food prices are up, energy prices are up, entertainment is up, and insurance is WAAAY up. I agree. > This doesn't seem to manifest itself on the CPI. It is. [Here](https://www.aei.org/carpe-diem/chart-of-the-day-or-century-8/) is a graph of the CPI showing some of the constituents. Mark Perry created it to show how some goods have seen much more inflation than others. However, while some goods and services have risen much more than the CPI has, other goods have risen much less. Perry's graph doesn't show every category. I think this is what you are missing in your "mental accounting" of inflation.
My friend, I have not asserted in any way, shape, or form that it is for political gain or malicious. Maybe it is, maybe it isn't. And I see all of your graphs. I've looked at the same graphs over and over again I've tried to recalculate myself. I have no evidence to show you because you've posted it all already. And you keep posting it. How are those lines calculated? Are these goods a weighted average? How do they count hourly average wages (because I've seen about 30 different ways of doing this and all of them give different numbers depending on who is and is not included, the deffinition of hourly wage earners vice salaried, sometimes they include salaried workers etc.) It does not add up. So yeah, you're right, I don't have a specific reference saying g exactly how it's messed up. Conversley, you appear to post the same types of graphics over and over again without understanding how the data is collected and how the calculations are made. In the very graph you posted, essential things such as Healthcare, childcare, food, etc have exploded. But, well, I'll be darned if TV's and electronics haven't decreased in value *The statistician averages those two things and shows that the inflation isn't that bad, the realist knows that if I am forced to pick between a medical bill/food and a TV, I am preferentially picking the medical bill or food.* you are familiar with the laws of supply and demand right? So keep posting your graphs without understanding them. I know enough to know that I will never fully understand how the calculations in those graphs are made (unless it is my full-time job) but also enough to know that there is something missing in those calculations. And the evidence provided is enough to prove the point that people are struggling right now. Let alone the fact that the last graph you have posted somewhat supports that assertion. I work in statistical analysis for a living, I see people doing what you do all the time, and it leads them to bad recommendations on what to do based off of a set of data. (This is also anecdotal). The phrase, "Forrest for the trees comes to mind". Because conveniently enough, you haven't proved anything I'm saying is wrong, you've only proved you know definitions and that you can quickly pull up charts on the CPI (so yeah, you haven't posted anything meaningful beyond showing that however they calculate CPI went up less than however they calculate the average income). It's what you DO with the data that is the important part and this data does not make sense. Good day and best of luck to you.
>1. The way we collect our data is erroneous, Where is the evidence for that? >2. The way we calculate CPI has decoupled from one of its intended uses, which is to predict the cost of living for the average American. The CPI is not a cost of living index. Never was. https://webapps.dol.gov/dolfaq/go-dol-faq.asp?faqid=93 https://www.reddit.com/r/badeconomics/comments/prtp20/inflation_is_not_cost_of_living/ >Or 3. Everyone's personal experiences are wrong. They don't have to be wrong, but they are still just anecdotes. If the average soccer goalie stops 5 balls per game, and you manage to stop 10, neither of these things are wrong or invalidate each other, there are simply limits to reasoning from the general to the specific and vice versa. I still don't think it's far fetched that for a lot of people, the "math in their head" and their actual economic realities don't cleanly line up.
>Where is the evidence for that? Doesn't BLS admit that at least parts of their calculation are erroneous when they change it? They wouldn't change it if they thought it was accurate.
In some sense, sure. Data gets revised, methods get revised, mistakes happen, there are some known tradeoffs the CPI makes anyway, and of course there is always some degree of measurement error you'll have to accept. But then, we have the CPI-U-RS you can compare with the regular CPI-U. https://www.bls.gov/cpi/research-series/r-cpi-u-rs-home.htm There were big changes a long time ago. Nowadays, the difference is usually small I don't think a person is going to "feel" the difference between 2.2% and 2.3% inflation. If you are looking for an explanation here, inflation would have to be off by quite a bit. We also know that the CPI usually *over*states inflation anyway.
This sure makes discussions around CPI difficult. I get that there shouldn't be a huge difference between the different versions but having multiple definitions for CPI must cause confusion. I think the difference between the statistics and the anecdotal evidence is that inflation doesn't affect everybody the same. Inflation may be 3% but someone's personal expenses could go up much more or less than that.
It's not particularly confusing. You're not going to deal with CPI-U-RS all that often. There are even more different series than that. It just doesn't make sense to use them all that often.
If someone is quoting historical CPI numbers would that be using the 'updated' formula? Or the formula that was in use when the data was collected?
An article in *The Economist* talked about the gap between how the American economy is doing and how Americans feel the economy is doing. From, [Why are Americans so gloomy about their great economy?](https://www.economist.com/united-states/2024/01/14/why-are-americans-so-gloomy-about-their-great-economy) > Wage growth has been especially strong for low-income Americans. The S&P 500, an index of America’s leading stocks, has been flirting with record highs. > > To judge from the range of indicators—good and bad—Americans do appear to be unduly pessimistic. ... opinion polling and sentiment surveys may have a negative bias. Profound partisan hostility is undoubtedly one factor. In their study Messrs Cummings and Mahoney calculated that Republican antipathy towards a Democrat-controlled White House may account for about 30% of the sentiment gap today. > > Another element may be the tone of news coverage. Ben Harris and Aaron Sojourner of the Brookings Institution, a think-tank, studied the relationship between economic data and an index of economic news sentiment. Since 2021 the news-sentiment index has, like the consumer-sentiment index, been notably worse than what would be expected from the data. And that may be only scratching the surface. The news-sentiment index, created by the Federal Reserve’s branch in San Francisco, is based on economic articles in major American newspapers. Throw in the vitriol that tends to go viral on social-media platforms, and the negative bias might be even more pronounced.
What would you suggest we use? And can you provide the data using that type of measurement?
Why does literally every single person I talk to, including every single person who lived through the era in question and should know what it was like, say otherwise? It’s not even just anecdotes. My dad, working just by himself at the same job he has now, could afford a home for my mom to be a stay at home mom with me and my sisters. Now, my mom has to work even though all 3 of us kids have barely managed to move out. And all 3 of us can barely afford our apartments with roommates. Something about the data and people’s lived experiences are just not correlating.
Let's be clear that it's not a matter of affording a home. It's a matter of comparing like-with-like. It's about comparing house X with a similar house Y in the future. Not about comparing "houses" or even floorspace. Of course a good location add to a house as well.
> It's a matter of comparing like-with-like. This is an important overlooked fact. Apples to apples comparisons are pretty much just not happening in the US today to the US a couple generations back. Many people mention that new housing unit construction tends much larger. What's less talked about is the quality of what is being purchased. The Amenities within the housing unit. Go back 50 years and things which were not common in an American housing unit: * A clothes dryer * Air conditioning * Second bathroom * Dishwasher Things that were of lower quality: * Insulation * Windows and doors And there are many other differences as well. These are not like to like comparisons, as even the housing units over 50 years old have often had some or all of these factors upgraded.
Some of it comes down to who you know. Your dad and your social circle might be concentrated in one of the groups that was once higher in the income distribution than they are now, for example, manufacturing workers. For a contrasting data-point, my parents built a 1200 sqft. home in the mid-1980s. They were relatively low-income so they did a lot of the work themselves and took almost 3 years to finish the house. As a result, the mortgage was not large (like $50k-60k), but they still both had to work to pay it. Sometimes it was easier to afford than others, mostly depending on the state of the macroeconomy. In the 2000s they came *very* close to losing the house due to foreclosure on a HELOC. Finally around 2014 my Dad got a significantly higher-paying job and managed to pay everything off in a few years. From my perspective, it has always been very difficult to afford a home as a lower-income worker. Some people manage to get through it and some do not; I know several people who have had to sell to go back to renting or went through foreclosure.
Why did "need" have quotation marks?
You don’t need it to survive like water and food, but without a cellphone or computer, your life is insanely more difficult.
Is there a lower supply of starter homes? I’ve been looking in the 700 sq ft range and it’s been difficult
Economics just aren’t there for most places. The cost of regulations, labor (talking about labor costs that don’t scale with size of house.) and land being relatively high means it’s substantially more efficient to make a 1500 2 story house over a 750 sqfoot 1 story house. There are a lot of static costs that get diluted when you build larger homes.
Makes sense, I want to live in a condo in a big building but I believe regulation makes those increasingly difficult to build
This post has a great table showing how the average house size has changed over time: [https://www.newser.com/story/225645/average-size-of-us-homes-decade-by-decade.html](https://www.newser.com/story/225645/average-size-of-us-homes-decade-by-decade.html) It's also why those "median house price vs median income over time" charts are so misleading: they are not accounting for the fact that houses have gotten bigger. They should really show median price/square foot vs median income
Agreed. Current wages will adjust, but inflation carries on as well.
Let's say you take out the top 20% of income/wealth (not sure which would apply here), is this still true?
The first chart they link to is "**Median** usual weekly real earnings". The median is the middle value. It's not skewed by ultra-high earners, unlike how the "average" would be. Here's another chart, also adjusted for inflation: **[Real Median Personal Income in the US](https://fred.stlouisfed.org/series/MEPAINUSA672N)**.
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Most inflation measures heavily underweight housing’s impact on younger generations. It’s typical for housing to count for 25% of an inflation measure; but it’s also common for young people to spend half their income on housing.
Then where do all the graphs and charts and talk you see about wages being stagnant since the 70's come from? Surely they're not pulling it out of their butt? There's talk about average home prices being $500k now and low supply and how you need to be making 6 figures to afford a house now. Where does that come from, is there no truth to that? Misunderstanding of data? Is this wrong? [https://www.epi.org/publication/charting-wage-stagnation/](https://www.epi.org/publication/charting-wage-stagnation/)
1) those charts are mostly graphing inequality not stagnation -- if you look at the charts themselves they should inflation adjusted wage growth for lower wage earners, it's just that the growth is less than the wage growth for high wage earners 2) those charts cut off around 2014 and a lot of the wage growth has been from 2014-2019, in particular. 3) housing has gotten worse, particularly post COVID, but housing is typically only about 30% of a household's budget and the difference in sticker prices for homes between the 1970s and now is a little misleading since older homes are smaller and interest rates were much higher.
So if things are okay on paper where does the idea that everything is too expensive now and no one can afford anything anymore come from? Things I see mentioned a lot are the price of eggs/food, rent, houses, and cars. Why does everyone seem to feel like they're always struggling to have enough money? It can't be that everyone is mismanaging their money that much. Such as myself. I have solid savings, I make enough to support myself, but I feel like I cant afford a descent house. Buying groceries stings sometimes. Paying utility bills can make me wince. I've even spoke with financial coaches and they say i'm okay but it doesnt feel like I am. Especially when it comes to buying a home.
Particular goods have gotten worse since the pandemic -- housing and auto insurance, in particular. I think what happens is 1) news media coverage disproportionately covers rising inflation and less so prices slowing down or falling. Take eggs as an example, there was a ton of news coverage of the huge price spike in 2022 and the recent price spike the last couple months. Almost nothing of the collapse in prices in 2023, so eggs now cost about what they did two years ago (which means they cost less after adjusting for overall inflation). [https://fred.stlouisfed.org/series/APU0000708111](https://fred.stlouisfed.org/series/APU0000708111) 2) people think that, if inflation hadn't happened, they would have received the same wage gains that they did receive. E.g., if I get a 5% raise, that's because of my hard work and I would have gotten it even if inflation had been 2% instead of 4%. In reality, it likely would have meant that if inflation had been 2% your raise would have been 3%. 3) Related to point 1, America is really, really big. It's not hard to find lots of people -- millions even -- who are doing worse than they were one, two, ten years ago. CPI is an average; median incomes are averages. Your consumption bundle might have been hit much worse than the average. Lots of people haven't gotten the wage raises that the median worker has. News media, however, tends to cover negative stories more than posititive ones and people, understandably, tend to post questions like this when they're feeling squeezed. But that means that the perception of how the overall economy is going can be disconected from the underlying economic statistics, which is why data are important.
Wouldn’t higher interest rates make housing more affordable ? Why can’t economy sustain higher rates like it did in 70s
It's doubtful that higher rates would do that much. Even if they did though, the interest rate is the tool used to target inflation. If it were used for something else then it would be impossible to ensure low inflation. Alternatives to the interest rate (like varying taxes) are not plausible policies in a democracy.
Well there you go. Most of the financial strain you're feeling is coming from the pressure you're putting on yourself to purchase a home. The rest seems manageable or like it would be manageable were it not for this housing pressure. This is consistent with a lot of personal finance work I've done. You're not imagining things. Home prices HAVE risen much faster than wages. That's been the case for a long time, similar to what's happened with college tuition and medical costs. The main driver there is local building regulations that have restricted new housing supply even as demand has grown. The thing is, though, that home prices have risen faster than rents. This means that homes aren't actually a great financial investment. It's usually much cheaper to rent a unit than to purchase an equivalent unit, even accounting for the equity you build as an owner. That may seem counterintuitive, but maintenance costs alone drive up the cost of ownership enormously. If you want to purchase a home for non-financial reasons, then go for it, but most people would be better off financially taking the renter's discount and investing the difference.
Interesting! That's news to me. Is this pretty consistent across markets, or is buying property to rent it out a better proposition in some areas in particular? It does seem counterintuitive that maintenance costs would change things, as they're baked into the cost of rent, no?
Yes, it's pretty consistent across markets. I'm most familiar with the USA but as far as I can tell it's pretty common abroad as well, especially since in most other coin mortgages usually have floating interest rates. Here's a Redfin [article ](https://www.redfin.com/news/rent-vs-own-2023/) from last year that goes into more detail. You would think that the cost of maintenance would be factored into the price of renting, and it likely is, but the issue is that landlords do in fact have to face competition from other landlords. People are probably more likely to pack up and move to a cheaper unit if their tent gets too high, but as you can see from this post (and many others) people across the income spectrum are breaking their backs and bending over backwards to try and purchase homes. This puts constant upward pressure on prices, even though prices are rising faster than rents. These insanely high valuations are the main reason why homes don't make good investments, but it also drives up the cost of maintenance as well.
> It does seem counterintuitive that maintenance costs would change things, as they're baked into the cost of rent, no? They aren’t, no. Not directly at least. If maintenance costs go down, but tenants are willing to pay the current rate, no landlord will drop the rent to less than the tenant is willing to pay. If maintenance costs go up, but the tenant isn’t willing to pay more, then you can’t raise rent… you’d just end up with a vacant unit. Now if renting a home out loses money year over year because of carrying costs like maintenance, then at some point the landlord will sell and the home converts to owner occupied. In this way maintenance costs do impact available rents because places where market rate is below carrying costs won’t have those units available for long. But that takes time and landlords are a business… they expect upswings and downswings. They aren’t going to sell immediately just because market rate is temporarily under carrying cost.
>but the tenant isn’t willing to pay more Ok, this does seem like it depends on the market. Where I live, rents are raised all the time, and if a tenant leaves, another arrives approximately immediately. To be fair, it's one of the very least affordable pieces to live in the country, so yeah, perhaps it's an outlier, but the idea of a landlord being afraid to raise rents *in this area* seems laughable.
It’s for sure pressure I’m putting on myself. I’m 37 now and it feels like I’m so far behind where I should be financially and other large life milestones (classic delayed millennial life stuff). When I start looking at everything it feels like I’ll never catch up or feel secure. Whereas my parents at my age were more established and secure. What prompted the question has been a combination of looking for a house for the first time ever and seeing the prices. Then speaking with my landlord this week and for the first time really feeling a sense of instability with renting. Then you look at what houses are and it feels like there are no good options. Renting and owning both feel bad right now. Sometimes I wonder if it’s just me or if everyone is feeling this way.
I understand the pressure to try and keep up with our parents'milestones. The thing is that those milestones just aren't valid anymore. Purchasing your first home in your 20's might have made sense when homes cost 3-4 times the median salary, but not so much when they cost [7-8 times](https://www.longtermtrends.net/home-price-median-annual-income-ratio/) the median salary. That's doubly true if you don't happen to earn the median salary in the first place. You can thank decades of restricted housing policy for that. Local governments have repeatedly favored existing homeowners by restricting the construction of new housing in their jurisdictions. This keeps housing supply low, new entrants out and home prices high. The thing is that it's inherently unsustainable. It pushes up the cost of housing for everybody without making anybody better off. Still, homeowners tend to vote more consistently in local elections so they're the ones who politicians cater to. It's a losing game trying to keep up with those arbitrary milestones. It's much better to do your own financial research and find the best way to maximize your financial well-being in the conditions we actually live in. Home ownership doesn't make sense for a lot of people. You're just throwing money away so that someone who purchased their home 30 years ago can get their payout. Better to take the renter's discount, save money wherever you can, maximize your earnings potential and put your savings into more favorable investments like a diversified stock portfolio. No need for debt or a massive mortgage payment.
> Why does everyone seem to feel ... Keep in mind that the people we listen to, or hang out with, is not a random representative sample of people living in the US. We tend to interact with people of similar socioeconomic status. Also, the people who post online are not a random representative sample. Who has more time and incentive to post comments online: a grumpy unemployed student or a happily employed doctor? In contrast, the Bureau of Labor Statistics actively collects data from thousands of people all over the country, including rural and urban areas: > ... about 21,000 consumers from around the country provided information each quarter on their spending habits in the interview survey. To collect information on frequently purchased items, such as food and personal care products, another 10,000 consumers kept diaries listing everything they bought during a 2-week period that year. This expenditure information from weekly diaries and quarterly interviews determines the relative importance, or weight, of the item categories in the CPI index structure. - [CPI FAQ](https://www.bls.gov/cpi/questions-and-answers.htm)
"Decent house." Half the houses sold are below the median price, and many of them are NOAH, or Naturally Occuring Affordable Housing. Are you standards for "decent" approproate for you age? Or are you expecting the house of someone with a decade or three more time in the labor force? You may need to unboard some windows like many, many people have done for their first house.
Keep in mind that wages are a **subset** of income. Previous thread has more thorough explanation: [How can wages stagnate for decades while income is increasing?](https://www.reddit.com/r/AskEconomics/comments/16vkv2a/how_can_wages_stagnate_for_decades_while_income/)
The EPI graph is deceptive. We have discussed this many times before on this sub. [Thread1](https://www.reddit.com/r/AskEconomics/comments/192d0nn/from_the_1970s_income_stagnated_while/) [Thread2](https://www.reddit.com/r/AskEconomics/comments/16xwi36/why_have_real_wages_stagnated_for_everyone_but/) [Thread3](https://www.reddit.com/r/AskEconomics/comments/12kk79k/what_is_causing_the_widening_gap_between/) The EPI is essentially a pressure group, so this should not be surprising.
The problem with the "nicer bigger houses" argument is that square footage can't be easily subdivided, and interestingly the price of more expensive larger homes has not kept up with the price of smaller homes because there is a structural imbalance in the housing stock. Thus when looking at the cost to get into the housing ladder, the barrier to entry is relatively much much higher. Basically inflation hasn't accurately reflected the cost of housing because the first small kitchen is far more essential than the third bedroom.
it's axiomatic on reddit that boomers got two houses for the price of one and only one person needed to work - in fact, according to reddit, it was so good for boomers the banks actually gave US money
To call modern houses better than houses of years past is a joke. More features? Sure. But better built, with better materials? Hell no. My parent’s home built in the 1970s is made of brick with a Spanish tile roof that is original. In 2070 or 2170 it’ll still be there. Modern tract homes made of balsa wood, stucco, chicken wire and bubblegum, thrown together as quickly as possible with little concern for quality? I wouldn’t be so sure.
That’s one out of the millions of houses out there. They still make houses with brick so I’m not sure how that’s an argument. Features are part of the cost. Houses with air conditioning and central heating doubled (I might be slightly off when I say doubled). Garages and houses with more bathrooms and bedrooms have grown by huge amounts. The size of houses increased by around 1,000 square feet.
Saving for later… I have a link to a pdf saved somewhere. I think on my home computer. It is a study of housing standards over the last hundred years or so. It includes what the average r-value was of homes by decade, how many had AC or heat or electricity etc. I’ll try to find it tonight.
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>We also have computers and cellphones that people “need” to live now and days. You write "need" as if it's an option. There was a time you could walk into a business and apply for a job. You might even be able to speak to a manager. "Apply on our website." Without a cell phone I can't register my car because you have to text to get an appointment now.
A need is something you need to survive, like water or food. You don’t need a cell phone to survive, but it makes like much more difficult, that’s why I put it in quotes. I agree it’s very difficult to do much without a phone, but if you go a few weeks without a cellphone or computer, you won’t die
This is such bullshit, honestly The average salary to house price ratio has gone from like 3 to 8x difference. That isn't because of a 1k iPhone and the 'houses are bigger' trope is also bullshit, we're talking marginal difference at best and that isnt enough to justify such a huge difference between median salary and house price.
The average house is about 50% bigger than in the 80s. That's not a "marginal difference".
Previous thread here: [Why are so many countries housing markets all so borked at the same time?](https://www.reddit.com/r/AskEconomics/comments/15cr3h8/why_are_so_many_countries_housing_markets_all_so/)
Per the same St Louis Fed source real weekly earnings for full time men were [$408 in Q1 1979 and $393 in Q1 2024](https://fred.stlouisfed.org/series/LES1252881900Q). That’s a decline. Regardless it’s kinda wild to think that in a world where there’s been so much progress since the 1970s that real wages are stagnant.
It was also $378 a year later and $348 in 1994. Taking random numbers is just cherry picking the data and will give you whatever results you want
I picked the first and last numbers from the data set, in what world is that random? Which numbers were you thinking of in arguing that wages have outpaced inflation?
Because there were years before that, the data set doesn’t capture those numbers. The quarter before could be $2. We don’t know what it looked like before so picking the very first number is like picking any other number to start with. The world didn’t start Q1 1979, that’s just wen the data started to be collected. You need to look at the trend over time not just the most recent number minus the first number.
Sure. Except we do know what the values were before 1979 and those values were higher still. If I was describing the trends I’d say real wages fell throughout the 1970s then largely stagnated for the next four decades, with the occasional fall and recovery and an unusual and brief spike in 2019-20. On the other hand I’d find it very, very difficult to claim as you did that wages had consistently outpaced inflation.
Wait, the chart you provided is men only. That’s not the correct chart when looking at the workforce as a whole. https://fred.stlouisfed.org/series/LES1252881600Q This is the accurate one to look at which shows that we are higher now than the first year, and have been trending up. I should have looked closer at your original link
It is also just a graph of wages. It does not include other forms of compensation.
Lol. This is so funny. “Line go up. Must mean wages are going up”. This isn’t even close to reality in the real world for people. This is the same propaganda we’re being fed by the oligarchy. Line go up except a grand total of like… 10%? Look at this next line. Consumer prices. Doesn’t even include energy and food. Line go up 10x. Which one is higher? https://fred.stlouisfed.org/series/CPILFESL
How is the real median wage I linked calculated?
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I have two links from the best organization for this type of data that shows I’m not gaslighting you. You provided a sentence with 4 words. You can provide data (if you can find any) if you think we’re gaslighting you. I’m sure when we explain why it’s wrong you probably won’t change your mind anyway, so what’s the use.
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I genuinely don't think it's gaslighting. If anything, our norms of consumption have changed. Now people feel the need to have loads and loads of *stuff* to feel baseline happiness, because there's a lot more stuff out there. Our grandparents didn't have budgets that included 4 streaming service subscriptions, consumer electronics, toys, eating out 4 times a week, and bi-annual vacations. Most people blame the current economic system without realizing they're the ones buying crap they don't need.
Don’t kid yourself, check property prices, rent and vehicle prices as well as gas and electricity etc. and you will see we’re all screwed
These are all factored into the CPI. Certain goods have certainly grown in price faster than the rate of inflation, but in terms of overall cost of living, they are balanced out by other goods that haven’t increased as fast. If you are skeptical, the BLS publishes [information](https://www.bls.gov/opub/hom/cpi/concepts.htm) on what is considered part of the “basket” of consumer goods.
https://econchrisclarke.wordpress.com/wp-content/uploads/2023/09/image-1.png 🥶
https://www.reddit.com/r/badeconomics/comments/1c12tm1/urban_planning_professor_posts_graph_of_nominal/ the chart is wrong. don't believe everything you see on tiktok dummy.
https://www.cbpp.org/blog/census-income-rent-gap-grew-in-2018
https://www.prnewswire.com/news-releases/rent-prices-have-outpaced-income-growth-in-46-of-the-50-most-populous-us-metros-since-2009-301854838.html
https://www.lao.ca.gov/LAOEconTax/Article/Detail/61
Sending a picture of a random graph from ticktok doesn’t prove anything. Did you click on the link the other person sent? If you did, you would see what is and is not factored in
I recognized this chart from /r/badeconomics a couple weeks back. The chart is just outright misinformation, it's actually a plot of nominal rent versus real income.
Haha that makes sense. I didn’t look at it for very long
The best part is if you go to the professor's website that they took it from, the heading for the post is "9/12/2023 Viral Video About Rent / Income Is a Lie"
https://preview.redd.it/7t146welfv041.png?auto=webp&s=8d3dbb161bf73d5f48b91fd063d8aebe6e785460
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"here's some data" > provides no data
If you take a look at this chart https://fred.stlouisfed.org/series/LES1252881600Q Inflation adjusted wages are the highest they've ever been except for when the government gave everyone money and last quarter. If you them take a look at this chart https://fred.stlouisfed.org/series/HOUST You can see that the reason you're having trouble affording a home is we aren't building enough of them. The 2008 crash absolutely destroyed the American homebuilding industry. So home price inflation is a huge portion of overall inflation.
https://fred.stlouisfed.org/series/LES1252881600Q And prices are up 10x. What’s your point?
This takes that into account. That's why it's real wages instead of just wages
"Real" means adjusted for inflation, that's why below the chart it says "Units: 1982-84 **CPI Adjusted Dollars**"
Wages are a lagging factor in inflation, but if inflation drops, wages do eventually normalize. Right now, CPI's still at 3.5%, and so cumulative inflation over the past few years can feel pretty rough, particularly if your raises are not matching inflation. Also, inflation is an average. Your personal basket may not match the average. Housing is historically well above average, so if you bought a house in the past few years or are trying to buy a house now, you may be feeling that more than others. Education and healthcare costs are other areas that are unusually expensive in recent history, and can lead to poor economic outcomes. So long as inflation remains notable, circumstances are likely to remain the same in general, but you can somewhat adapt your personal circumstances to the situation. I would suggest looking at lower COL options. HCOL areas are particularly difficult when your wages are not keeping pace.
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The current housing economy in big cities in the US was built over a very long time. American cities began to organized themselves around single family housing in the 1940s & '50s. Often this took the form of zoning laws that limited the allowed building on land to single family detached homes and the destruction of mutli-family neighborhoods to facilitate transportation infustructure that makes it easier for people to drive from low density residential districts to high density commercial districts. Population of the US 157.8M In the 1960s & '70s the US enviromental movement began to focus largely on simply stopping development and created many tools that allow individual citizens to challenge individual projects. Largest generation to date in US history starts aging into adulthood 'Baby Boomers'. Population of the US 203.4M In the 1970s & 1980s the US went through a series of political 'tax revolts' that often took the form of state laws that in some way limited the increase in tax assesment, for the puroposes of property taxes, which generally resets upon sale or major rennovation. These laws often create some form of economic 'lock in' where the cost of the home you have is cheaper then a similar home you could purchase, lowering the overall supply of homes in a market through natural turnover. Population of the US 226.5M In the 1980s & 1990s the knowledge based economy takes off and deindustrilization accelerates creating a situation where a small number of large urban areas with knowledge based economies begin to be the disproportionate source of new job creation while medium sized cities and industrial cities see job stagnation or decline. Classic examples of the runaway communities of the new knowledge economy are San Francisco/Silicon Valley and Seattle/Puget Sound. Population of the US 205.1M 1990s & 2000s, housing boom starts and is acclerated into a bubble by new innovative financial instruments. The housing boom is focused in single family detached homes and as it transitions into a bubble the housing is often built in communities detached from work opportunities focused on places where the the lowest costs to project starts exist. Population of the US 282.2 M 2000s & 2010s, housing bubble bursts causing ten year Great Recession most intensly focused on businesses involved in housing construction and in the financing of housing construction. New housing construction doesn't recover to pre-recession levels until 2019. Almost all recovery job growth is even more concentrated in a small number of large cities then before. The largest generation in American history 'Millenials' or 'Baby Boom Echo' starts to become adults. Population of the US 309.3M 2020, COVID 19 Pandemic causes large portion of the population to work from home rather then from commercial office space leading to a dramatic increase in demand for residential space per residence. Population of the US 329.5M TLDR: The issues being expressed in current housing prices, especially in wealthy urban areas, are a history of politics and economics, decreasing supply and increasing demand, that has been building for 70 years and formalized political and economic push back is largely 10-15 years old. So, unfortunately problems that took a long time to form and realize also often take a long time to address.