Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: Elroy Jetson who wrote (12925)	10/6/2004 11:10:48 AM
From: mishedlo	Read Replies (2) of 116555

Elroy (or anyone) can you answer this question from Kestral presented on my board on the FOOL. ================================================================ One of my best friends is much older than myself (he's in his mid-40's) and we were talking about housing, since we are both looking to buy a place at some point in the near future. He said something that really struck me. He did the numbers and nevermind inflation, just take Housing Cost (as in total cost of buying a home) as a percentage of one's Annual Income (pre-tax) and he said that when his parents got married and bought a house, the cost of buying a house was roughly one and a half times his yearly pre-tax salary. We did some quick math on an average home and we can clearly see this is not the case today. In fact, it's more like ten times one person's yearly pre-tax salary! I tried to do some Googling to see if I could find housing as a percentage of annual income and wasn't too successful but I'd really be interested to see what the results are. I'd be willing to bet that the chart would be a LLUR (lower left to upper right) pattern with the latter half of the upper right going extremely parabolic. I'd also be interested to see what the historical average would be (and I'd be willing to bet we are well above that number). If it's true that reversion to the mean inevitably happens, then there could be a lot of pain in the future. But I'm more interested in knowing for personal reasons. At this point, I'm stating the obvious but it seems like renting is a much better deal than buying at the moment.

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