Amidst all the constant talk about the housing bubble deflating these days, I’ve been asking myself the following question:  is it easier or harder for my generation to buy a house than my parents’ generation?  The sneak peak answer is yes, a lot harder!  To answer this question, I found some historical average housing price data for the last 50 years.  Let’s see what secrets are revealed. 

First, let me be specific about my data.  The data is the median price of houses actually sold, reported quarterly.  We’ll talk about what that implies later – first, to the data!

Clearly, we see the price of housing has been going up.  No surprise.  And yes, you’re reading that correctly.  The average house cost less than $20k in the early 60s, compared to $250k these days.  But… a cheeseburger used to cost a quarter back in the day, right?  So let’s take inflation out of the equation.  I’ll normalize the data into June 2006 dollars.  So now we’re looking at the real price of the average house over the last 50 years.

Suddenly, the price of housing isn’t increasing that much, is it?  In fact, working out the numbers, housing has had a average real gain of only about 1.7% annually.  Let’s think about what the means.

It means the real price of the average house is more expensive now than it was (about 65% more than 40 years ago).  But, I would bet the average house now is a lot nicer than the average house was 40 years ago.  Things like A/C are becoming quite standard.  Construction is nicer (better insulation, etc.).  There are lots of benefits — highlighted by the every day modern conveniences.

But there is one more critical piece of information to answer my original question.  How have wages increased over time in America?  My initial reaction would be to say the average income mirrors inflation.  But why guess when the US Census gives you the real data!  Here is the average American annual household income over the years.

And now inflation-adjusted for 2005 dollars.

Hmmm, not looking too hot.  Finally, looking at the yearly gain.

Over the 30 years I have data for, the average US household income has only had an real increase of 0.3% annually.  This means it has basically kept up with inflation (my instinct was correct!).  This is clearly lower than the 1.7% gain that the average house has seen.

You may not think this 1.4% difference is a big deal, and year-to-year, you’d be right.  But what about over 30 years (again, comparing me with my parents)?  1.4% over 30 years is 51.75%!  Now that is significant!  The average house will cost me ~50% higher than it would have cost my parents!

So, Mom and Dad, houses are harder for me to buy than they were for you to buy.  However, my house will be a little bit nicer! =)