Tuesday, March 23, 2010

Food, Clothing, Housing Costs at All-Time Lows?

Median priced existing single-family home in the Midwest (January 2010): $127,200

Monthly payment with 20% down payment and 5.1% mortgage: $553

Qualifying annual income required to buy a $127,200 home: $26,544

Median annual family income in Midwest: $59,961

Midwest Housing Affordability Index: 225.9%

MP: I'm not sure if that's a record high for Midwest home affordability (most recent data here), but it seems pretty amazing that: a) the typical Midwest family has more than twice the income necessary to purchase a median priced home, b) the median priced home in the Midwest is so low ($127,200), and c) it's possible to purchase a median-priced Midwest home with less than $27,000 of household income (assuming a 20% down payment of $25,440).

That would mean that a married couple both working at Wal-Mart full-time (34 hours per week), at an average hourly wage of $9.68, would have household income of about $33,000, almost $6,000 more income than the $27,000 required to buy a median-priced house in the Midwest. Of course, the Wal-Mart couple very likely wouldn't have the $25,000 down payment, but they wouldn't necessarily have to buy the median priced home and they wouldn't necessarily have to put 20% down.

With all of the talk about stagnant or declining wages, increasing income inequality, the disappearing middle class, etc. the fact that the typical household in the Midwest has more than twice the income necessary to buy a typical house suggests that it really can't be all that bad. As I reported recently, clothing is cheaper than ever before in history (less than 3% of disposable income in 2009), and food is cheaper than ever before (9.6% of disposable income in 2008). With home prices and mortgage rates so low, it's also likely that housing costs as a share of disposable income are also at historical lows (update to follow).

9 Comments:

At 3/23/2010 8:23 AM, Anonymous morganovich said...

no question the midwest is cheap (though the coastal cities like SF, NY, boston are another matter)

and no question mortgages are cheap just now.

but the real question is what's going to happen to rates in a week when the fed stops buying all the mortgages? do not underestimate the effect of the more that $1 trillion in purchases they made last year. that's going away.

rates going from 5-6 is a 20% increase in payments. that's no joke.

 
At 3/23/2010 11:45 AM, Anonymous Benny The Man said...

We are fat, wear lots of bad clothes, and ramble around in taxpayer-subsidized homes far too large for ourselves or our economy.

Be careful what you wish for.

And yes, housing in the perma-depressed heartland and housing in SF, LA or NYC are two different worlds.

In Detroit, to name of city of interest only to urban proctologists, you can buy a mansion next to the old Henry Ford mansion for $25k.

Free trade, like a pretty lass, dispenses favors and frowns unevenly.

 
At 3/23/2010 12:37 PM, Anonymous Lyle said...

The only issue appears to be that no one can find a job in the midwest. Parts have been in a long term downturn for 100 years. There is a begining of a trend to move call centers to the midwest, and since there is no need to have large concentrations of call center workers, build sub call centers in parts of the empty downtowns. Real estate is even cheaper in the rural areas than some cities.

 
At 3/23/2010 2:20 PM, Blogger sethstorm said...

The problem with that cheapness is that you also have lower quality goods. Thank the currency-dumping and junk-dumping folks in the Third World who don't have an idea what quality means.

 
At 3/24/2010 11:42 PM, Anonymous Anonymous said...

and do those two working at wallmart have health insurance and can they even work 34 hours a week, how much does child care cost?

 
At 3/25/2010 6:43 AM, Blogger jmj1 said...

Americans are the most spoiled people in the history of the world. People in Europe have less disposable income, live in smaller homes, pay much more for fuel and, of course, drive smaller and less safe cars

 
At 3/25/2010 9:18 AM, Blogger Mr. Dart said...

I remember in 1988 when moving from Chicago to SF... the "affordability index" for SF was under 15%. I wondered how a city could survive with over 85% of its citizenry unable to buy a median priced home.

 
At 3/25/2010 12:22 PM, Blogger Ron H. said...

Benny, Benny, your elitist stripes are showing!

>...wear lots of bad clothes...

Who gets to decide what clothes are bad clothes? Can't I decide for myself what to wear? Do we now need a "Fashion Czar"

>,...and ramble around in taxpayer-subsidized homes far too large for ourselves or our economy.

Who should decide what size house I should have? Can't I chose for myself the house I want to live in? Should YOU tell me where to live?

 
At 3/25/2010 12:31 PM, Blogger Ron H. said...

Mr. Dart,

>I remember in 1988 when moving from Chicago to SF... the "affordability index" for SF was under 15%. I wondered how a city could survive with over 85% of its citizenry unable to buy a median priced home.

what did you find the answer to be?

I'm guessing that the affordability index refers to median income for the whole US, not just SF residents.

 

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