A Nation of Housing Haves and Have-Nots

Everyone who follows the statistics of rising income and wealth inequality knows we’re becoming a nation of haves and have-nots. What’s not being discussed is the role of housing.

Let’s start by recalling that for the vast majority of bottom-95% American households, the primary asset is the family home. (The wealthy, not coincidentally, own businesses and income-producing assets.)

Back in 2000, many homes around the U.S. could be purchased for $93,000. It was a substantial sum, but at 2.2 times median household income of $42,128 that year (and less than 2X median family income), it was affordable. (source: U.S. Census Bureau Income Data for 2000)

The conventional down payment (20% of the price) of roughly $19,000 was substantial, but within grasp of a two-income household that lived below their means and scrimped and saved for a few years.

According to the BLS inflation calculator, if the $93,000 home had kept pace with inflation, it would now be worth $128,600 in 2016. Since median household income is now $57,263, the $128,600 home is 2.24 times median household income–in the same ballpark as valuations in 2000. (source: March 2016 median household income via Doug Short)

Guess what a nothing-special sold in 2000 for $93,000 home in a nothing-special S.F. Bay Area neighborhood just sold for. Hint: guess high. How abouttriple the inflation-adjusted value of $128,000 or $384,000– 4 times the original purchase price of $93,000.

Not even close. The house just sold for $897,000, almost 10 times the 2000 valuation. This is not 2 times median household income; it’s 15 times median household income. The conventional down payment of $180,000 is beyond the reach of any household that didn’t inherit substantial wealth or get the down payment from wealthy parents.

The down payment of $180,000 exceeds the total wealth of most households.

As for saving up $180,000 for the down payment–only households in the top 5% can even hope to save such a sum after many years of scrimping and saving.

Compare the family wealth of a household that bought a house for $93,000 in 2000 and finds it’s now worth $130,000, and the household that finds their home is now worth $900,000. After fifteen years of paying the mortgage and inflation-matching appreciation, the first family may have home equity of around $50,000 to $55,000–a nice sum to help fund retirement, but not enough to insure there will be equity to distribute to heirs once the owners have passed on.

The second household has seen its $19,000 down payment and modest mortgage payments balloon into a cash-out valuation in excess of $850,000.This equity is large enough to not only help fund a comfortable retirement; it’s enough to fund cash purchases of homes in lower-cost regions for several offspring.

Imagine the leg-up offered to the children of the second household when their parents’ housing windfall enables them to buy a home for cash. If the $850,000 equity was wisely husbanded, it could fund two home purchases (in lower cost areas) and the college expenses of a few grandchildren.

The second household has the advantages of unearned wealth simply from buying a home in a housing bubble area. The children of the first household won’t be able to buy a house for cash from the equity of their parents’ home–assuming there is any equity left after the parents’ retirement expenses are paid.

The offspring of this family will have to save up a down payment (or qualify for a subsidized mortgage), even if they do inherit some percentage of their parents’ home equity. They will have to make 30 years of mortgage payments to own their home free and clear.

They may well remain renters for life if they choose to live in high-demand, high-valuation regions such as the S.F. Bay Area or NYC.

The second household’s offspring could live mortgage-free, and have a nest egg to invest in their children. Again, this requires wise management of the $850,000 equity, but the generational wealth that could be transferred (if it isn’t squandered) will widen the already large gap between the prospects of the two households.

Of course bubblicious valuations will likely decline, but even a 50% drop would still leave the second household with a $450,000 home and a mortgage well under $50,000. Even if this family holds onto the house and never sells it, the equity is available via home-equity lines of credit (HELOCs) or second mortgages.

Geography charts the financial destiny of households, at least in terms of housing. Hot housing markets (San Francisco Bay Area, West Los Angeles, Brooklyn, etc.) were once affordable to everyday middle-class households. Now they are only affordable to wealthy foreigners bringing bucketloads of cash or to the top slice of upper-income households, i.e. those with incomes in excess of $200,000 or more annually.

Those who bought homes in these areas when they were still affordable (the year 2000 or earlier) are reaping gains in wealth that remain unimaginable and unattainable to middle-class households outside these rarified high-demand housing markets.

Housing is yet another driver of our increasingly have/have-not economy.

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  • ICFubar

    If housing, as a speculative commodity of the FIRE sector, is manipulated by the top speculators within the system it is what it is. If the existing system allows for banking and finance to dominate the results we see this a natural outcome of the system. Banking and finance as a business will naturally follow in the wake of the system model. That bankers must develop a business plan that naturally will see them wishing to expand their business to the limits the system will allow is only natural. That the private for profit debt-money system the world operates under will allow for bankers to be able to inventory and control everything and everyone on the planet is a natural result of this system. So any bemoaning these results will get little sympathy from me unless those crying want to address the root problem. Too many make a good living off of this system and their moaning at the death of capitalism, as it would suit them, is only because the system is currently goring their ox. None of the traders and speculators would back regulating the system to protect that those who work, unknowingly because they are not taught how the system operates, and continue working propping up the entire system as this would affect their bottom line. And so onward we go towards the inevitable and natural outcome of this system where I believe we will see the freedoms humans naturally aspire to crushed under the boot of a police state exhibiting all the worse aspects of Fascism and Communism in combination, all a natural outcome of a system the allows the creation of money as a private for profit enterprise. That the bankers see themselves as “doing God’s work” is not so much a delusion as it is an natural psychological and ideological outcome of their position within this system. Steve Keen and others have much to teach us about taming the worst aspects of this system. Should the price of housing be a function of the property’s rental value?

  • Here is a good article from the 12th of this month on this topic by you Mr. Smith.

    May 12, 2016 Dear Homeowner: If You’re Paying $260,000 in Property Taxes Over 20 Years, What Exactly Do You “Own”?

    We’re constantly told ours is an ownership society in which owning a home is the foundation of household wealth. The concept of ownership may appear straightforward, but consider these questions:


  • y3shuA imMANu3l

    Luke 15:
    3 Then Jesus told them this parable: 4 “Suppose one of you has a hundred sheep and loses one of them. Doesn’t he leave the ninety-nine in the open country and go after the lost sheep until he finds it? 5 And when he finds it, he joyfully puts it on his shoulders 6 and goes home. Then he calls his friends and neighbors together and says, ‘Rejoice with me; I have found my lost sheep.’ 7 I tell you that in the same way there will be more rejoicing in heaven over one sinner who repents than over ninety-nine righteous persons who do not need to repent.

  • y3shuA imMANu3l

    Isaiah 33:10
    “Now will I arise,” says the LORD. “Now will I be exalted; now will I be lifted up.”


    • unheilig


  • diogenes

    This account leaves out two vital elements, one a cause and one an effect.

    The cause is, as ICFubar points out below, the system of fiat created bank money and usury that fucks our economy like a rag doll from its headquarters in New YOrk City. All “bubbles,” not just housing bubbles, are inflated by these same parasitical predators by exactly the same means, their usurpation of the Constitutionally declared right of the people’s government to create money — not a small oligarchy of private bankers. Until that is addressed, all the ills that infest our society and destroy it, as we can see all around us, will continue and grow worse. Mr. Smith’s constant refusal to face these facts makes him part of the problem, not part of the solution. He is a pestiferous menace.

    The most dire effect is that, as a lady up in Napa commented several years ago, “it’s not progress if our children can’t afford to live here.” Mr. Smith — I wonder where he’s from — describes it as a “choice” for people to live in the community’s we are born in. The current predatory system is radically destructive of community. It is an attack on the fundamental fabric of society at the most basic and grass roots level imaginable. In covering up the causes of this social and cultural and community disaster, Mr. Smith abets them and abets the parasitical predators who operate and profit from this destructive, literally treasonous system. He has repeatedly earned my total contempt.

  • y3shuA imMANu3l

    “The one who has pure and true Love for humanity, with no lust forming a part of it, in his Soul is Master over not only the Terror, but of his own self and therefore of all the world besides.
    Love is the secret of all Life, but Lust and Passion is death. Take the Lamp of White Light and go forward and you will become the Master instead of being the slave.”

  • y3shuA imMANu3l

    “He has learnt that Matter is Illusion, and that Spirit alone is Real and that the Great Work is the redemption of Spirit from Matter.”
    “I have pierced the illusions of matter.”
    “I renounce the Idolatry of shadow worship, and turn to the Living Reality.”

  • y3shuA imMANu3l

    “Form is no more, time is no more, personality is no more. Instead of Time Is Eternity, instead of Form is Essence, instead of Persons are Principles.
    The dross of any merely intellectual or physical concept must be converted into pure gold.”