Adjusted for inflation, a Single Family Home costs 75% more than it did in 1987 | Hacker News Reader

Adjusted for inflation, a Single Family Home costs 75% more than it did in 1987

marketplace.org

65 pointspaulpauper48 comments

I bought my home in the middle of nowhere in New England four years ago for $220k. I could sell it tomorrow for $400k. If I wanted to test my luck, I'd be able to sell it in 2-3 months for $450/500k.

The median _family_ income for my area is $52k/year (2007-2011).

Things are fucked for the average person.

I keep coming back to the Player Piano[0]. It really is the "Reeks and Wrecks" vs. the Doctors.

[0] (https://en.wikipedia.org/wiki/Player_Piano_(novel))

You could sell your house for twice as much but you will have to pay twice as much to buy a new one.

He could move to Missouri and pay half as much.

I'm living this now, and it's more than twice as much to build a new house.

What has the square footage and amenities for single family homes done over the same time frame? You aren't comparing apples to apples...

https://www.propertyshark.com/Real-Estate-Reports/2016/09/08...

Not to mention the average household size (number of people) has been dropping...so the square foot per household member is up drastically...

This article says homes are 74% larger, but compares to 1910.

Not sure why the cost per household member should matter all. I didn’t get a family size discount on my home.

> I didn’t get a family size discount on my home

You do though. The cost of kitchen for a couple without kids, and one for a family of 5 is roughly the same. You might have more square footage overall for house, with more people, but the construction costs are concentrated on the shared spaces like kitchens or even things like living living rooms where square footage will scale sub-linearly with the number of people in the household.

Not to mention there used to be more multigenerational homes...therefore more people to pay the cost.

That has no effect on the price of single family homes. You’re bringing in a very different metric.

That's literally not a discount though.

I would also note that you have to consider mortgage rates. They're on the rise now and I'm not sure if it'll still hold, but last time I looked at it the overall payment is down.

In 1987, mortgage rates were about 15%. To put that into perspective, a $100k 30 year fixed rate mortgage would cost you $1,543/mo at 18.45% and only $442/mo at 3.38%.

I only hope that rates going up will deflate the real estate prices but so far they don't appear to be budging

https://mleverything.substack.com/p/buying-a-home-in-the-us-...

People compete on monthly payments not the actual house price. Only people who can pay upfront compete on the house price.

Changing interest doesn't change how many people are willing to live in a location. Your monthly payment will just go to the bank instead.

Not an expert, but I did read the article. The point of the "Case-Shiller" metric is that it is computed on the basis of the same exact property changing hands in different time periods. That way it controls for trends in the product pool.

Or as the article put it: Case-Shiller requires two transactions for the same house,” Lazzara said... It controls for the variability in the quality and size of the homes sold from year to year by measuring the change between houses that sold in one period with the prices of the same houses when they last changed owners. “The repeat sales mechanism is a way of adjusting for the mix of product so that you really are getting an apples-to-apples comparison,” Lazzara said.

Does it account for improvements in electrical, air con, comms?

Regardless, we don’t need a fancy index to observe how fucked the market is.

The index referred to in the article uses repeat sales of the same house, so should be insulated from these effects.

I’m thinking out loud here but: Lets game this out. Let’s say that interest rates go up significantly- say, to 12% or something. Ok, so then naively you would probably expect house prices to fall, because people won’t be able to make payments otherwise.

But what if you’re someone who bought a house in the low rates/high price era. Are you going to sell? No, because your mortgage is underwater- you can’t afford to sell. Or let’s say you’re one of those investment firms buying up everything. Can they sell? Not really, because again, they’d be technically insolvent as their debts would be much more than their assets. They paid cash for an asset and they won’t sell that asset at a loss.

So, if nobody is selling, do prices actually fall? Maybe not! In that case, financing a house for a first time homebuyer becomes truly impossible- high prices and high rates. The only buying that will get done is for cash, by the investment firms which own a lot of their housing stock outright, and have rental income to supply cash to buy even more of them. Interest rates don’t matter when you can pay cash.

So my prediction is that in a high rate/high price market, the era when a family could own their own home is coming to a swift close.

Life forces home sales. Change of jobs, loss of job, retirement, marriage, divorce, and death are all common reasons people move. If you’re underwater in these situations it forces either a short sale or foreclosure and eventual bank sale. You are correct that people won’t want to sell, but circumstances will force enough hands that it happens. Then you might start getting in a situation where if it drops enough people will walk away instead of being so underwater causing more foreclosures.

High interest rates turning into bankruptcy and people selling their land to the rich is as old as time itself.

It’s how the Roman republic became the empire as small farmers were bought out by huge landowners, financed by the spoils of war which went mostly to the 1% at the time. Then family farms became replaced by slave labor. History doesn’t repeat but it often rhymes.

You generally don’t actually have to pay your mortgage - you just lose the house if you don’t (well, and take a hit to your credit score).

People can and do walk away from a place when they’re underwater.

This is country-dependent. In New Zealand, you cannot walk away from the mortgage. You might be able to if you declare bankruptcy, perhaps.

The whole point of the mortgage is that it's backed by the property.

Doesn't your credit take a major hit though? Then you'd have a harder time buying a new place for some years.

I compared prices of houses in Morocco vs America. And for same prices, American homes were WAY better, in all ranges of prices.

But I would totally lose an argument if I tried to argue that the same salary goes a longer way in America, everything is cheaper there, except if you average out the quality of life.

People are simply accustomed today on a better quality of living, it is not only the square footage, everything else is more expensive. At the same time I won't call it a non-issue, if that's what society is demanding, then there is something wrong, you can't easily unplug and live in 1987. We live in a society sadly :(

Okay but technology improvements' one main thing is to make higher quality of living cheaper.

These summary stats mask a huge amount of regional variation. My parents bought their house in a Midwestern suburb in the early 80s for about 100k, or 270K today. The house is worth 300k today, a 9% increase over 40 years. Meanwhile my West Coast home in has increased in value 33% in the 10 years I've owned it accounting for inflation, or 250% since it was built in the late 1990s.

My parents house is a small fraction of their assets while my house is a significant portion of mine. Likewise my mortgage payment is a much larger chunk of my income than theirs ever was.

My Midwestern suburb home has gone up in value about 33% in the 4 years I've owned it (accounting for inflation, without taking it into consideration it's gone up ~50%), so yeah, very regional.

Even sub-regional. Hip second tier Midwestern cities have probably appreciated considerably more than my parents' aging first ring Midwestern suburb.

Note that one factor may be population, which has increased about 35% since 1987. Buildable (and desirable) land is finite.

Desirable land is not just finite, it's shrinking in area, due to ongoing fossil-fueled global warming. For example, many people who were planning on retiring to the bucolic Sierra foothills in California have changed plans since that whole region is now a major fire risk zone (much more so than it was 40 years ago).

https://www.deseret.com/2022/2/11/22928243/stanford-universi...

> "Rao and other researchers looked at the “vapor pressure deficit,” which is an indicator of how much moisture the air can suck out of soil and plants, across the region. Vapor pressure deficit has increased over the past 40 years across most of the American West, largely because warmer air can hold more water."

Likewise, zones categorized as having major flood risks are expanding:

https://www.nytimes.com/interactive/2020/06/29/climate/hidde...

And “desirable” is a fairly dynamic thing with really unequal outcomes. The people who are best able to afford it (yes the gentry, of gentrification) have shifted considerably in their preferences in the past 20 years or so, from large suburban properties to much more dense urban centers or at least close/quickly accessible proximity to them. Scarcity of actual space to develop anything increases as population density does too. Some of this desirability has shifted back since the pandemic, but I don’t think it’ll be enough to negate the non-linear price inflation that’s happened and still is. Major and medium sized cities are just growing faster than the land and policy incentives can keep up with, especially relative to overall population growth.

Detroit used to be highly desirable land.

This is a very interesting point. Economics surely plays a factor in the price of real estate, as does climate as suggested by the other comments. Here is a link to the change in house prices in all 50 states. It is not at all uniform:

https://www.google.com/amp/s/www.cnbc.com/amp/2017/06/27/how...

We bought our first home last year at a 3% interest rate. The price is up 45% one year later. If we had to buy that same house today with todays interest rate our mortage payment would be double. This is deeply unfair to people who don’t own homes.

(Comfortably) Owning a home is a key part of the American dream. We need an Elon Musk for housing. So many of societies problems can be traced to high housing cost.

> Owning a home is a key part of the American dream

This is wierd. Why would owning a home be part of a dream? Owning a home is par for the course in most parts of the world.

> So many of societies problems can be traced to high housing cost.

While a significant portion of housing costs are due to materials, labour, and regulations that limit how much you can build, a very large amount of house price increases in recent years is found in land price increases, not the house itself.

The Elon Musk for that particular problem is Henry George, and his book Progress and Poverty.

I'd be curious to know what the current average q ratio is for the median size home, both in terms of BOM and labor.

I've talked to hundreds of contractors personally, so I have some skin in the game. I frequently get quotes that are orders of magnitude apart, so I have a great suspicion that there's just tremendous slack in the housing market.

As it should be.

Avg home size in 1987: 1780 SQ ft

Avg home size in 2022: 2540 SQ ft

That’s a 43% increase, and unsourced, may be an outlier skewed mean?

I’d much prefer 700 sqft or so and find this average home size increase harmful to my quality of life. Granted it’s less extreme in urban areas I prefer to live, but it still dominates new development of single dweller units. I basically have to leave the city now to have a yard for my pup to run around in, because the incentive is to sell luxury or rent to multiple tenants. We’d be perfectly happy with a tiny house in a tiny yard. I would and even continue to pay a premium to do that where I can access other amenities on foot. It just increasingly isn’t possible to do that.

The same houses have increased by that price.

So no. Size isn't what's causing this.

How do you figure? I've avg size of houses are going up, you're paying for extra house.

Are these prices also adjusted for interest rates? Cost of borrowing in 1987 was 10% compared to today at 3%.

Cost of borrowing is already back to 5%

I am not sure what is the value of comparing the price of anything “adjusted for inflation” anymore to be honest - because an average salary, if it were “adjusted for inflation”, would be far larger than what you encounter in reality.

Everywhere life's screwed. Crappy leaders are screwing up life for everyone and people just stopped caring about politics (the ones that actually matter for their lives...).

And interest rates are a lot lower today... the actual "cost" is probably the same or lower today.

HGTV wasn’t a thing back in 1987

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