Finances in the Golden Era and today

[Puzzicato]

Twenty months' median income vs. 69 months' income for a house is a whopping big difference--a difference that hasn't come to pass in all areas. The reasons for the differences are worth considering.

True. I would imagine that in the 1950s only the wealthiest people would have imagined owning a second property or a home that they weren't going to live in, but I know a number of people who still live with their parents who have investment homes (that they can't afford to live in themselves). That must have assisted the rise in prices for housing. And in Australia there has been room for "negative gearing" - money that you lose on an investment property can be offset against your taxes.

 

[Paisley]

Certain housing markets were hotbeds of speculation here, too.

 

[vintage68]

You can compare the price of a house with wages. Using median income of $2,410 per year in 1944, the $4,000 house cost 20 months' income.

According to the U.S. Census Bureau, median household income was $52,029 in 2008. The house now selling for $300,000 now costs 69 months' income. (That's assuming no change in income taxes or interest rates.) If you use that measure, the $4,000 house would cost $86,666 today. However, the character of the house's location may have changed. What may have started as cheap housing on the outskirts of town may now be in a bustling neighborhood--something that tends to raise the price.

Still, I think it's fair to say that housing prices have gone way, way up. If I were in the same financial position I was in 14 years ago when I bought my house, there's no way I could afford to buy it now. And the area has changed little.

That's very illustrative Paisley, thanks for making such a great distinction. 69 months!!!

 

[Mid-fogey]

All...

When you take every factor into account, what you end up with is that the $4,000 house now costs...$300,000...

...As you say, we can't just plug and chug for a specific item. That's clear from the example of the house that JamesPowers has given. I've used income in comparison to the price of the house because that's the main consideration in buying a house on credit.

...excellent points and quite true. These comparisons are pet peeves for me. I've worked as a docent, and people want very much to relate to people of the past. My impression is that, for people without a great deal of background in the history of a particular era, these simplistic comparisons are very misleading.

Part of the problem is that people tend to want to "up-categorize" themselves in deciding where they "fit" in with what ever past era they happen to be looking at.

 

[Paisley]

I've heard the recommendation to avoid taking on a mortgage that is more than two to two-and-a-half years' income. I think that's a good idea.

As for where a person of today would fit in the society of yesterday, that's very difficult if not impossible to say. Considering that lifestyles have upgraded quite a bit, it's likely that any given person would have been living more modestly.

 

[MissHannah]

The average house price in the UK costs 5 times the average annual salary and the average age of a first time buyer is 37. We're screwed if we want to own a property!

 

[jamespowers]

It could probably be found around 86th Avenue in East Oakland for $51,000.

I should have stipulated "not in a ghetto."

 

[jamespowers]

I've heard the recommendation to avoid taking on a mortgage that is more than two to two-and-a-half years' income. I think that's a good idea.

As for where a person of today would fit in the society of yesterday, that's very difficult if not impossible to say. Considering that lifestyles have upgraded quite a bit, it's likely that any given person would have been living more modestly.

That is a good recommendation. Of course the geographic location where a property exists makes quite a difference in price but comparing apples to apples makes better sense. Your use of the average income makes sense as well. Housing is indeed a great poprtion of our incomes than it has ever been before---even if you consider all of the upgrades etc.
Our current lifestyle is something that many from just sixty years ago could easily jump into. However the reverse is also true. I imagine the person from 60 years ago could better cope with less than we could today though.

 

[LizzieMaine]

I think the main difference would be attitude. People 60 or 70 years ago would be far more used to settling for less than people today. Before the war, most Americans, for example, didn't realistically *expect* to ever own a home. It'd be nice if it worked out that way, and it might even be something to hope for someday, but most Americans in 1939 were renters, had always been renters, and expected they'd always be renters.

It's only since the postwar era, and the massive explosion in home ownership that came about thanks almost entirely to the GI Bill, that the idea has evolved that home ownership should be the default -- and having been raised in such an era, a lot of people today find themselves very frustrated at not being able to achieve it. Had they lived 70 years ago, the attitude would have been -- well, them's the breaks, kid.

 

[jamespowers]

I think the main difference would be attitude. People 60 or 70 years ago would be far more used to settling for less than people today.

Yep, that would be about how I see it. They were used to adversity and they planned for and accepted it as a way of life.

 

[dr greg]

but most Americans in 1939 were renters, had always been renters, and expected they'd always be renters.
.

Which of course raises the question: who were they renting from?
There must have been widespread ownership of homes by one section of the population......

 

[LizzieMaine]

A lot of housing stock was owned by manufacturing companies -- here in New England, practically every small city had a "Millville," where all the houses were owned by the local textile mill and rented to the employees. In some places, entire towns were essentially real-estate subsidiaries of manufacturing firms, and all of the employees rented their homes from their employers. It was basically the industrial Northern equivalent of sharecropping.

 

[Paisley]

Here's a table from the U.S. Census Bureau showing percentage of home ownership since 1940 by state:

http://www.census.gov/hhes/www/housing/census/historic/owner.html

It looks like home ownership for the U.S. as a whole has been at least 45% for most of the 20th century.

Part of the homeownership trend may be that median age has gone up from 23 in 1900 to 35 in 2000 (see p. 58). Most people are better able to buy a house at 35 than at 23.

http://www.census.gov/prod/2002pubs/censr-4.pdf

Here's a graph showing the home price to median income for various cities in the U.S. (If I were a bright young person, I'd think about moving to Atlanta or Phoenix or Tampa.)

http://www.nytimes.com/2009/04/22/business/economy/22leonhardt.html?_r=1

 

[LizzieMaine]

What's most interesting about those figures is the geographic distribution of prewar home ownership -- if you lived in a rural state, you were generally much more likely to own a home than if you lived in an urban area.

The difference, of course, is due to family ownership of farms -- which would be often be passed down from generation to generation, and mortgaged only in the direst of situations. In such cases you were as likely to inherit a home -- or have it given to you as a wedding present, on land carved out from family holdings -- as you were to actually buy one. This was a very different mindset from the idea of postwar suburban home ownership, which revolved around buying a small house to start with and working your way up to a bigger one.

The big exception to this rule is Michigan -- but the reason for that is tied up in the explosive growth in the auto industry, which strongly encouraged home ownership among its workers.

 

[Paisley]

Real estate is cheaper in rural areas, too. Some of the southern states, which are pretty much rural, had low home ownership rates, though--I don't know what the story is there.

 

[Foofoogal]

They were used to adversity and they planned for and accepted it as a way of life.
----------
fftopic: a bit.

Wanted to throw this tidbit in.
I spoke to a couple from California yesterday. They stated they moved to California in the 1940s. The man was evidently so successful that he could walk into his bank and ask for a million dollar line of credit and get it.
With the economy now the lady stated basically she was shocked that things have changed so dramatically and could not wrap her brain around it.
Now their name meant nothing basically. Somehow that made me feel so much better about life. ( not about them but about joe blow) I told her it is because they are now dealing with huge corporations that make stupid decisions. In their case something about California, economy, back logs, blah, blah, blahs.....
I will always believe the car companies once they got their best customers in lease vehicles shot themselves in the foot. Once upon a time people traded in a car about every 2 years. Nothing makes common sense anymore.
At all.

Handshakes, trust, integrity. etc. How can people be like this if they have never known people like this as examples. Impossible.
Work ethic?

 

[LizzieMaine]

Real estate is cheaper in rural areas, too. Some of the southern states, which are pretty much rural, had low home ownership rates, though--I don't know what the story is there.

Sharecropping and tenant farming.

 

[Geronimo]

Real estate is cheaper in rural areas, too. Some of the southern states, which are pretty much rural, had low home ownership rates, though--I don't know what the story is there.

Lots of people living in their parents' and grandparents' homes?

I had some great grandparents who owned multiple rental properties back in the day (50s, 60s IIRC), and some of their married kids lived in those for a while.

 

[Mid-fogey]

Partly...

Sharecropping and tenant farming.

...and small holding subsistance farming. Always a significant but generally forgotten part of the south.

In rural areas where land is cheap and people are handy, people built their own houses. My grandfather cut trees on their farm and laid them up for a season before sending them to the mill to use for timber to build his house.

 

[Paisley]

Maybe my family is unusual. My 80-year-old mother and former farm girl says she never knew anyone who ever inherited a house. When the parents died, the house was sold and the proceeds divided among the kids, who'd long since moved on. In her words, "we got our houses the hard way."