David Leonhardt usually does first-rate work, but his housing piece in the NYT this morning has some real data gaps. Jason Spitalnick has already picked up on the mixture of good news and bad news in the piece, and I want to add to his analysis.
The central problem is that most of the NYT discussion of housing affordability is theoretical, not real. So, for example, the article talks about the purchase price of a new home relative to household income. The problem is that a fully-employed male today makes (in inflation-adjusted dollars) about $800 less than his counterpart thirty years ago. But the difference in median income for families has shot up dramatically in the intervening years because the typical married couple now sends two people into the workforce. In other words, it now takes two earners to pay a mortgage rather than one. A generation ago, a typical wage-earner could buy a typical house; today, it takes two incomes to buy an average home in fully 75 percent of America’s cities. And that means housing is just as affordable as it used to be?
Leonhardt also relies on data that is built on the assumption that `typical’ families put 20 percent down when buying a home. That was a reasonable assumption a generation ago, but today’s first-time homebuyer puts down an average of just 3% of the purchase price. The NYT piece notes this, but only on the good side–more people can get into houses with less cash. That also means they are financing 97%–not 80%–of the purchase price, and that means a huge increase in the mortgage payments.
The best way to understand the squeeze on families is to compare inflation-adjusted mortgage payments over time–not what families theoretically would pay, but what families are actually paying month by month. The data are relentless: from the 1970s through today, mortgage payments–what families actually spend–has gone up 81%.
One last point is worth noting: by picking the reference point as the early 1980s rather than the 1970s or the late 1980s, the NYT is benchmarking off the worst housing market in the second half of the 20th Century. Because inflation was out of control and mortgage rates were stratospheric, home buying was curtailed and housing markets suffered. Is that what we want to hold up as the model for comparison?
The data are complex, and I don’t think the NYT is trying to slant the discussion. But describing the news as rosy for homebuyers doesn’t reflect reality.
