Since things seem to be hopping here at L&P this week, I thought I would take this chance to inaugurate the first of what I hope will be a number of posts in the upcoming months that track the ways in which the economic circumstances of average Americans are, contrary to the media and other prophets of doom, getting better and better. The media are very good at giving us the bad news, or what they think is the bad news, so I'm hoping to continually catalog the good news that they overlook or that, in the case of today's item, they sometimes stumble across.
Despite a widespread sense that real estate has never been more expensive, families in the vast majority of the country can still buy a house for a smaller share of their income than they could have a generation ago. A sharp fall in mortgage rates since the early 1980's, a decline in mortgage fees and a rise in incomes have more than made up for rising house prices in almost every place outside of New York, Washington, Miami and along the coast in California.
Nationwide, a family earning the median income - the exact middle of all incomes - would have to spend 22 percent of its pretax pay this year on mortgage payments to buy the median-priced house, according to an analysis by Moody's Economy.com, a research company. The share has increased since 1998, when it hit a low of 17 percent before house prices began rising sharply in many places. Although the overall level has reached its highest point since 1989, it remains well below the levels of the early 1980's, when it topped 30 percent.
There are several reasons for this, including the noted increasing incomes (again, contrary to popular myth), but the key is certainly lower interest rates that have enabled monthly mortgage payments to fall as a percentage of income. And, as one interviewee points out, houses today are bigger on average (and he neglects to mention that they have a lot more and better stuff in them - more have central a/c, better building materials, hard-wired smoke detectors, etc.), so families are getting more for their money. Changes in lending practices are noted as another causal factor, as lower down payments have made ownership possible for some even in the face of higher list prices, and efficiencies in the mortgage market are mentioned as well. Home ownership remains at record levels (69 percent) as a result.
This part of the American dream remains within reach of more and more average Americans.