It's Never Been Better for Americans: Lower Monthly Payments and Bigger Homes Than Ever
About a week ago, JCarrol1948 asked me to comment about this article "America Without a Middle Class" by Harvard law professor Elizabeth Warren who presents a typical "gloom and doom" scenario of America's middle-class. Here's an excerpt:
The crisis facing the middle class started more than a generation ago. Even as productivity rose, the wages of the average fully-employed male have been flat since the 1970s. But core expenses kept going up. By the early 2000s, families were spending twice as much (adjusted for inflation) on mortgages than they did a generation ago -- for a house that was, on average, only ten percent bigger and 25 years older.
Professor Warren presents a chart claiming to show that household spending on food (-19%), clothing (-32%), appliances (-44%) and cars (-30%) went down between the 1970s and 2007, but that spending on housing, health insurance, and child care services all doubled during that period (+100% or more). I'm still trying to find the Census Bureau data she used, but it's not easily available. In the meantime, the charts above provide some alternative perspectives on historical housing costs since the 1970s.
The top chart above shows inflation-adjusted monthly house payments (in 2009 dollars) back to April of 1971 based on: a) the median sales prices of new homes sold in the U.S. (data here) and b) the average monthly conventional, 30-year mortgage rate (data here), assuming a 20% down payment. Except for a few years in the early 1970s, housing costs (by this measure) have never been cheaper, with the monthly payment on a new median-priced home purchased in October of only $906.13. That's about $500 less per month (and 35% lower) than the $1,402 payment in April 2006, and less than 50% of the payments above $1800 in the early 1980s.
And when you factor in the fact that the typical new home built today (average of 2,519 square feet) is more than 50% larger than the typical new home in 1973 (1,660 square feet, see bottom chart above, data here), Americans have never been better off when it comes to housing costs.