According to data released yesterday by the Census Bureau the average new home sold for $317,500 in February. According to the labor department, the average hourly wage is $20.50. The two statistics imply that it takes the average worker 15,487 hours of work to buy an average home, equivalent to about 7.5 years of work. To see how this compares to history, below is a chart going back to 1971.
One important caveat: this analysis doesn’t take into account financing costs. Mortgage rates are just about the lowest that they’ve ever been. When you take into account the cost of borrowing, low interest rates change the equation. Although prices appear higher today than in the 70s, the extra hours “spent” on the home itself may balance out when compared to the hours “spent” on the financing back then. Still, because mortgages can be prepaid, I think I’d rather buy a cheap asset with less financing at a higher rate than an expensive asset with more financing at a lower rate.
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