"Peter, I believe I detect a bias in your post, that of someone who has owned his or her own home for a long time. You cite real estate values being up as a good thing."Comment from a reader of yesterday's post
The boomer generation had a very different experience with housing prices than today's young people do.
Compared to today, housing used to be affordable. Now it isn't.
The premise of yesterday's blog post was that the economy is better than it was four years ago when Trump was president, or even five and six years ago, before Covid. The economy is strong, GDP is up, the stock market is up, real estate prices are up, and unemployment is down. Good, right? I'm a boomer, and my income and assets are up sharply. Great! The implication is that Biden, and now Harris, should be helped by that tailwind from a good economy and asset price growth.
Maybe not. Consider real estate prices. I wrote from the point of view of someone who owns a home, not from someone buying one.
John Coster wrote from another perspective. After graduating from what was then called a "vocational high school," he and a friend started in business as electricians, in a micro business, "Two Guys and a Truck." His career blossomed. Over his 40-year career, he owned and operated electrical contracting companies. That evolved into work overseeing the design and construction of multimillion-dollar projects for Amazon, Microsoft, T-Mobile, CenturyLink, and Toyota.
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| Cleaned up for his license photo, 1977 |
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| How he looked in that era |
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| 1977 |
Guest Post by John Coster
Peter’s recent post stating that even the working poor are better off financially than they were four years ago is not necessarily correct, nor necessarily relevant. Rather than debate economic theory or statistics, I propose we unpack the reasons why ordinary working people would feel they are not better off than they should be; or could be, because that’s what truly matters. Also “four years ago” is too abstract to be meaningful. People remember “a time before now” that was better, and that’s the benchmark.Here's an example. In the late 70s, I was a young construction electrician working in Sacramento. My monthly rent for a nice but modest two-bedroom apartment was eight percent of my pre-tax income. I could have easily afforded a nice tract home for 12% of my monthly income. That’s my mental model for “normal” -- whether reasonable or not.Today, the monthly rent for that exact same apartment would be 26% of pretax earnings of a union electrician. A modest house there today would require almost 50% of that worker’s pretax salary, which means he or she would not even qualify for financing.Today, in King County, Washington, where I live, the median annual household income is $116K, but the median income required to buy a median-priced home here is $188K. That’s a 62% spread.So this got me thinking: Was the affordable housing of my Sacramento experience an anomaly? I decided to look up some family history in Massachusetts going back almost 100 years. In 1931, sudden tragedy forced my grandmother and her four children to move in with her sister into a multifamily rental in Malden, which is a working-class city adjacent to Boston.
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| John and brother Doug Coster in front of the rental house |
My dad recalled the rent was $25 a month for the second and top floors of the house. According to the census, the average rent in the U.S. was $18/month so that seems like a reasonable range. I looked up the wage for different occupations at that time in Boston, but it gets tricky because women and African Americans got paid significantly less. However, the average non-skilled factory worker made $.87/hour and a skilled laborer could make up to $1.50/hour. Doing some simple math, that means an unskilled factory worker would have experienced only 12-15% of their earnings going to housing. And this was during the Great Depression!I wondered how a renter in that house would fare in today’s economy. In 2022, the same two-floor unit had a monthly rent of $4,000. The median household income for Malden is $94K, which means rental of that same unit would require 51% of that salary. That's over five times the income-to-rent ratio of the 1930s.I understand that “median” and “average” are not always meaningful. But in my lifetime, we’ve seen housing grow to consume three to four times of what had been previously experienced in a family’s budget.In a 2024 survey reported by Forbes, nearly 30% of all American adults (including 20% of Boomers) have less than $1,000 in any kind of savings. That’s over 72 million people living on the brink of insolvency.That doesn’t sound like “doing well” to me -- or to them.
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9 comments:
Mr. Coster has a good point. The U.S. has the highest GDP in the world, but too much of the wealth is in the hands of too few people. Not only that, but our national debt is over 122% of our GDP. That can’t be good for our offspring.
Bingo
There is a demographic aspect to this. After we Boomers finish up and get out of here, there is going to be a housing glut, which will lead to a whole different set of problems. But expensive housing will no longer be one of them.
(Unless out of control immigration fills it all in.)
The rent’s too damn high. I notice the new apartments on McAndrews across from Medford Fabrication say “Studios starting at $1395.” If you pay 30% of your income (a standard home loan qualification), you need a yearly income of $55,800 per year or $26.82 per hour. Talk to kids today (I do). $17-20 per hour is a typical ‘good job.’ They have no prospect of affording even a studio apartment.
Spring of 1970, just discharged from the Army, my then wife and I bought a modest 2Bdrm home in a nice East Sacramento neighborhood on a nice sized lot. I had just gotten a job with a Bank, which paid $500 a month, less than I was earning as a Captain in the Army. I forget the exact price of the house, but our out of pocket cost to move in was just over $800, and the mortgage payment, including property taxes and insurance was $108.00 a month.
Now retired with Social Security and a VA Disability benefit, while I'm secure where I am, I really hope my rent doesn't keep spiraling up, because I'd have nowhere to go.
As a young single person, I bought a house in Long Beach, CA in 1978 for about $65K while I was working as an $10 per hour grocery clerk in a grocery store. That house today sells for about $650K. I know that grocery clerks are not earning ten-times what I did in 1978. Buying-power is less today than it was in the 70's.
Scanning yesterday's Daily Courier, I noticed rooms for rent, with a shared bath and kitchen starting at a $1,000 a month.
I remember my dad commenting that a mill worker across the street used to make about what an elementary school principal made, but that started to change. Education came to become a big divide in income for jobs. Now, it is difficult to find workers for blue collar jobs, but the pay is starting to change. Carpenters in Alaska to build new homes now price out at $80 an hour. Seems like if you’re working it should be possible to have housing from a fairness perspective. Make it illegal for corporations to buy housing as a financial asset?
According to Pew Research, nearly 65% of voters in 2022 were over 50 years old, probably in that "comfortable economy" group--and around 70% of them were in the 50k+ income range. So the Goldman Sachs report may be relevant if age trends hold. But I agree that housing costs are way out of line, for many reasons. My young nephew recently described the Sound Area real estate market as being "on cocaine!" When someone asked what that meant, I said "That means it's going to die soon."
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