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Join Antony Davies, director of economic research at CFC, as he looks at how changes in American houses change the idea of success in the American housing market.
Contact the Economic & Market Watch team at economicresearch@nrucfc.coop. Visit us, download the dashboard and intelligence brief and explore other Solutions media on our website, nrucfc.coop/Solutions.
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What is Solutions Economic and Market Watch?
Listen to the latest economic insights from CFC experts John Suter, Sam Kem, and Antony Davies.
Welcome to the Economic & Market Watch podcast. This is Antony Davies.
Antony Davies:Imagine a friend complaining that cars were affordable in his parents' day, but no more. Yet when you look closer, you discover that his parents drove a Ford while your friend drives a Ferrari. It's true that your friend's car is more expensive, but that's largely because he has redefined what car means.
Antony Davies:This redefinition also drives complaints about housing prices. In 1985, the median US home sold for $84,000 versus $420,000 today. Wages have risen too, but not as much. Since 1985, the median home has quintupled in price, but the median workers' income has only tripled. That's the squeeze families feel and why 35% of younger workers believe they will never afford a home.
Antony Davies:But this is only half the story. The other half is that today's houses are Ferraris compared to the Fords of past generations. In 1956, only half of new homes had a garage. Today, 96% do. In 1956, only a third of new homes came with stoves, garbage disposals, or wall insulation.
Antony Davies:Only 25% had more than one bathroom. 10% came with dishwashers, 5% with refrigerators, central air or storm windows. None came with microwaves. None came wired for cable or Internet. Today, 80 to 100% of homes come with these amenities.
Antony Davies:Now compare size. In 1956, the median US home was 1,100 square feet. Today, it's 2,200. Today's median homeowner owns the equivalent of two 1956 homes. In 1956, 100 square feet of house cost 4.2 months of the median worker's wage. Today, it costs 3.6 months. By square footage, today's median home is 15% more affordable versus seventy years ago. But in economics, psychology matters as much as numbers. For centuries, each generation has made life a little better for the next. Over time, gradual improvements have added up to massive ones.
Antony Davies:Yet because the changes were gradual, we've come to regard the extraordinary as normal. Today, we expect our houses to be insulated, to have all the major appliances, to have central air, to have garages, spare bedrooms and offices. A structure without these things we don't even call a house. We might call it a cabin or outbuilding. In becoming accustomed to better and larger homes, we stopped noticing that they were better and larger. Now we only notice that they're more expensive.
Antony Davies:Homebuyers will counter that getting more home for the dollar matters less when mortgage rates rise. That's correct. The rise in mortgage rates over the past four years boosts monthly mortgage payments by 40%. But again, we take things for granted.
Antony Davies:As with the appliances and HVAC and extra space, we came to regard low mortgage rates as normal. But they weren't normal. They were exceptions. We mistook a temporary advantage for a permanent change, and that's where psychology comes in.
Antony Davies:It is true that home buyers are worse off as compared to a few years ago. But it is also true that they are much, much better off as compared to a half century ago.
Antony Davies:Of course, the fact that the quality of houses has risen faster than their prices doesn't help if you can't afford the increased quality, but that's a topic for another day. The upside to an increased standard of living is that luxuries become widespread. The downside is that we then take them for granted and become annoyed when we lose some of them.
Antony Davies:Our grandparents defined success as owning a home. We define it as owning a much better and larger one.
Antony Davies:If you're struggling to find a home within your budget, don't take it as a sign of failure that you can't afford as much as you could a few years ago. Take it as a sign of success that what remains within your reach are homes that your grandparents never even dreamed possible.
Antony Davies:This is Antony Davies for the Economic & Market Watch podcast. Thank you for listening.
Antony Davies:Download the weekly Economic & Market Watch intelligence brief and dashboard, and send us email at economicresearch@nrucfc.cop.