Friday, February 11, 2011
For example: "Back in my day we didn't have these new-fangled computers and iphones that you kids have today.. if you wanted to talk to someone, you got off your rear end and actually went to the person to speak face to face!"
But what if, in some respects, "Grandpa" or "Grandma" was right?
Let's compare some economic stats- 1939 vs 2009. Obviously prices of goods and services are going to be higher in 2009 as will annual wages- that's a given- but I want you to focus on percentages.
Average Wages: 1939- $ 1,730
Ave. Home price: 1939- $ 3,800
In 1939, the price of a new home was 219% the average salary.
In 2009, the price of a new home was 591% the average salary.
~ In other words, in 1939, the average home price was a little over 2x average salary. In 2009, home prices on average were just under 6x average salary. It was extremely rare for someone to need a 30 year mortgage back then. A home loan could be repaid in full within 4-10 years.
Next- automobiles: 1939- $700
In 1939, the price of a new car was 40% the average salary.
In 2009, the price of a new car was 71% the average salary.
~ Basically if one devoted 100% of their average salary to a new car, in 1939, a person would have enough by mid-May. In 2009, one would have had to work until mid-August. It was just as rare then to find a car buyer who took out a 60-72 month car loan. Cars were affordable enough in relation to salaries that if one really needed a loan, it could be repaid easily in 24-36 months.
Of course when you need 1-3 years longer to pay off a car, or 15-20 more years to pay off a home, it means you are paying more in interest over a longer period of time, and this makes banks and other lending institutions very, very happy little bunnies.
Posted by Susquehanna at Friday, February 11, 2011