Fallacy of the American Dream
Any good modern follower knows home ownership is the new American dream. The National Association of Realtors says so, and you can trust them, it’s not just in their best interest but yours too. Rugged individualism is so 19th century, being able to buy a home is how you stake your claim today. It’s that easy.
Why wouldn’t it be, it’s an investment after all. Buy a house and live in it for a few years then sell it for up to twice as much. It’s amazing how you can double your money in a few decades! Then you have the money to buy a bigger house or do whatever it is you please with that money. It’s great because the prices always go up and if you’re really ambitious you can flip houses and make money off of several investment properties through this same phenomenon.
And this is why the market crashes. It is the inevitable bust to the boom/bubble that contributed to the disaster of 2007 and is starting up again even while we still are in the recession from 2007.
There’s a very basic problem with houses being considered an investment. The idea that you can buy, then sell for more money later on means that the price of every other house on the market has also gone up. Selling a house for say $100,000 dollars, that you bought for say $50,000 dollars means you doubled your money and made $50,000, but the next house you buy is going to cost you at least $100,000 so you’ve now negated your perceived gains, not to mention the increase in costs in every other item you purchase from cars to food.
Using information with average prices through history we can track the cost of new houses on a year by year basis, we can then also relate those prices to wages.
This chart tracks average wages in the blue line and the cost of a new home in the red line from 1966 to 2009.
Going back further from 1966 into the 50’s showed consistently even as is shown on the left of the graph.
1970 was the year when home prices really took off. From a 1969 price of $15,500 they leapt to $23,450 in 1970, while wages over the same period went from $8,550 to $9,400. A fifty percent increase in price and a ten percent increase in wages when we had previously had prices increase in consistent amounts and salaries keeping pace fairly equally.
Below is a chart focused on home prices from 1966 to 1975 to show how intense the increase really looked without the higher end of the decades to come diminishing it. In four years prices doubled.
But wait there’s more. For today’s customers we have a special offer with two more charts showing new home prices from 74-92 and 99-09 showcasing two more consequences of the American Dream that’s been sold to millions of foolish Americans in the past 4 decades.
First we have the chart from 1974 to 1992 showing the continued rise of new home prices over that period.
The first thing you notice on this chart is the post-1970 rising rates of new home costs continued, but you may also notice the pronounced bump occurring in the late 70’s.
This leap was actually the prices going from $58,100 to $78,200 from 1979 to 1981. Two years(three depending how you count I guess) and a 20k increase in prices.
Lastly on this chart you’ll certainly have noticed the giant leap occurring in the late 80’s.
This was when prices went from $91,600 in 1988 to $120,000 in 1989. 30-thousand dollars in one year!
It’s even more amazing when you realize that both of those leaps(from 79-81 and 88-89) were larger than the average years wages which went from $17,500 to $21,000 for the former and $24,00o to $27,000 for the latter.
But you were promised two extra charts with today’s offer and two you’ll get. Here is the second free chart showing prices from 1999 to 2009.
That’s a first round vertical leap. From a 2001 price of $136,150 we got to $228,700 by 2002. To make that $92k increase even more impressive is that wages increased a whopping $59 over that year. Yes I said fifty-nine. A $59 dollar increase put wages for the year at $42,409.
Except there is something unique about this chart. You’ll notice it stands out with a pronounced drop off in 2008. That’s because prices went from a record high in 2007 of $313,00 for a new house to $238,880 in 2008 before dropping further to $232,880 in 2009 and 2010.
Good news is that the wages in 2007 were also at a record high at $50,823 though they also dropped to a not so impressive $39,423 by 2009.
The American Dream used to be attainable. Easily so in fact. From 1955 to 1969 new home prices went from $10,950 to $15,550, about a fifty percent increase. Meanwhile over that same time period, wages went from $4,130 to $8,550, slightly more than doubling. Whether in 1955 or 1969 you could expect to pay about 2 or 3 years worth of salary for a new home.
The increases from 1970 onwards have seen that become harder and harder. Even though wages have increase, their rate of growth has lagged behind the increase in prices.
The idea that people can buy and sell homes for ever-increasing amounts of money is a fallacy. You do not make money when the price of the commodity you’re trading in keeps going up as well. The reason you sold your house for more than you paid for it, is because you are also now paying more for your next one.
Yes prices and wages rise over time. It’s a natural part of economics. However forcing liquidity and easy credit into the markets creates higher and higher increases to the point when the bubble must burst. Eventually too many people are stuck in for too much money they really don’t have AND as a consequence there are no longer so many people available to whom those assets can be sold too.The American Dream has become the American Scheme.
Posted on March 5, 2013, in No Hope For America, Problems to Ponder, The Life of Man and tagged american dream, american scheme, boom bust cycle, bubble, charts, economics, homes, housing, housing bubble, increase, new homes, prices, sales, wages. Bookmark the permalink. 8 Comments.