This table – or similar – is widely shared on social media, showing the affordability of homes has vanished as the price to income ratio has gone from 2.1 to 5.3.
But there is a glaring error in this calculation …
The error is it assumes homes bought in the past are identical to homes purchased today.
But home sizes have been supersized over this time period. If we normalize the ratio for the change in square footage alone (and ignore other home improvements and features), the price to income ratio – by square feet – is remarkably similar.
There are also issues with this adjustment, of course. One side has median prices, while the data on new home sales is in average square feet. The market includes both old and new homes so the average size of homes being sold at any given time will be different than new home sizes. Of course, many (if not most) older homes have been updated and remodeled over the years – what was once a 1200 sq ft home is now a 2000 sq ft home. Finally, as incomes rises, one’s take home pay may change due to taxes (but taxes and deductions also change).
The main point, however, is that comparing home prices and incomes from the past to today, without making any normalizations of the data, is nonsense and intended to produce a propaganda meme: everything is awful! Today is worse than ever! The US is the worst country in the history of the world!
