December 6, 2008

Change

Change. While we may not have much control over what happens around us, we can control how we react.

In doing research these past few weeks my initial focus was on how deeply housing prices have been effected and if any serious prognostication might be offered regarding when prices might hit bottom and level out. For the first question, as detailed in an earlier posting, our area – greater Fairfield County in Connecticut – has seen housing prices, with few exceptions, 22-25 % lower than last year. Of the second question, when will prices level out, I don’t know. No one does.

One question often leads to another and in the searching for answers an unexpected twist sometimes emerges. In researching the historic ups and downs of housing costs I wanted to somehow keep things in perspective. Merely factoring in inflation to determine the relative cost of housing didn’t seem quite enough.

In the years 1945-1950 the cost of buying a modest existing house was the equivalent of approximately one year’s gross salary for a workingman. In 1950, a modest, newly built, home could be obtained for little more than a years gross salary – under $8,000. By 1975 relative prices had gone up, yet, a modest, existing home could be obtained for about 2 years gross salary of a single wage earner– under $35,000 – even within the cities of Fairfield County, Connecticut.
By the beginning of 2006, that salary - to - purchase ratio had climbed to 4 to 5 years of gross family income or 6 to 8 year’s gross salary for a single average wage-earner. For a modest home!

Something terribly wrong has happened to the American homebuyer during these past 30 years or so. Whatever changes are coming, let’s hope they are for the better. Maybe, we all need to take a step back.

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