I disagree.  IMO the NYT has made very reasonable choices here.  The concept of "affordability" is not a perfect measure of our housing happiness, but I can't think of a better one. For instance, the square footage of US housing has increased relentlessly over the period -- in other words, people are choosing to buy more house.  Neither you nor the NYT are concerned with this.

Also the NYT reference point most places in the article is 1985, 20 years ago.  Look at the graphs.  For most of the US the peak in non-affordability was about 1980, and by 1985 it was entering a long plateau until increasing a few years ago.  IMO this is the major point of the article, the long plateau of affordability in spite of alarmist articles about the housing bubble.  And the NYT does a pretty good job of expressing it.

btw the Moody's calculations you are writing about DO account for decreasing down payments. 

Of course, data is in the eyes of the beholder.  Most of the facts you state are true too.   Two-earner families have increasingly become the norm for homeowners.  But that wasn't the subject of the article.

The new neighbors are now bitching about their heating costs.  Maureen Hay

Hey, Maureen; they're just tossing you a bone.  Gotta leave y'all and your little bitty 60's style houses with some self-respect, eh wot? 

I am open to your viewpoint, that the shift to the two-earner family has been driven by need.  It certainly is for some people.  And it certainly is the conventional wisdom.  However pending real data I don't believe it's true for most people.  I believe that the shift to the two-earner family has been driven by 1) opportunity and 2) want.

Opportunity meaning the opening up of a wide variety of jobs for women, at all pay scale levels, that pay (not quite) as well as for men. 

Want as in "I want stuff."  Like maybe you want a bigger house.  Certainly there are entire new classes of stuff that people consider necessities these days.  Like cell phones.  Like lots of other personal electronics.  The change is slow, we don't hardly notice it.  For instance there are now three times as many automobiles per capita in the US since the 1950's (which has caused a withering away of public transportation).  That's an enormous change.  Meanwhile the percentage of women in the workforce has doubled.

p.s. on Manhattan

The Manhattan market has been unlike any other for the past 100 years at least.

It's an island only 11 miles long. Since mid-century, it has been segregated thusly: Harlem and other minority neighborhoods, the teeming masses, about 96th Street, and below that, the skyscrapers, the commuters work spaces, the wealthy people with second or third or fouth homes in other places, and the young people crammed into tiny or shared apartments trying to make it there so they can make it anywhere. The latter live there a few years, make their mark, and move somewhere else, or get a rent stabilized apartment which they don't use as a real home after a few years, but use from time to time as a mail drop and are loathe to give up. You betcha, this situation, this makes for an unusual market! Throw in a bunch of internationals willing to snap up an expensive condo to use a couple momths a year, as we have now, and yes, we no longer have poor people living below 96th street. Only so many people you can fit in 11 miles.

Smoke on your pipe and put that in  .  .  .

Elizabeth, you also need to take into account quality improvements. Houses sold today are typically larger than those built and sold in the past (something the NYT article points out). I also believe that other measures of housing quality have improved as well.

Another point worth considering. If progressives really care about making housing more affordable, then they should be very concerned about the regulations that are mostly responsible for increasing prices. This was the conclusion of a study done by a few Harvard economists:

http://post.economics.harvard.edu/hier/2005papers/HIER2061.pdf

It has interested me that the Woman's Movement and Republican ascendency has occurred simultaneously.  To some extent they need each other.  I have not noticed this being discussed but it seems that the economic and social trends that gave raise to both groups made them co-dependend on each other no matter that they are on the opposites sides of the culture wars.

Almost all of this alleged affordability is because interest rates are lower now and wives have been forced by economic necessity to enter the workforce.  Based on the data in the Times article, the ratio of the median price of a home to the median family wage went from 2.62 in 1985 to 3.83 in 2005.  If you additionally correct for the portion of the family wage coming from a second wage earner, the ratio went from 2.62 in 1985 to 4.66 in 2005. 

I believe that Prof Warren is making a very important point. 

Just to flesh her argument out a little, the problem with having to depend on 2 incomes to support the sort of middle-class life that was once achievable with only 1 income that because so many families are so dependent on having a dual income to make ends meet, they are ill-equipped to deal with a possible loss of one of the incomes - as a result of divorce, illness, job loss, or whatever.  In this sense, the security of many middle-class families is actually a lot less secure than one might assume at first glance.  They are less secure than there parents may have been, given that in earlier generations, stay-at-home moms served as a sort of insurance policy, as they could enter the work-force at critical times, such as when extra $ was needed for medical treatment.

This line of analysis is explored in depth in her book the 2-income trap. 

Almost all of this alleged affordability is because interest rates are lower now and wives have been forced by economic necessity to enter the workforce.

I don't see how you can assert that women work because they're forced to.  Wasn't the right to self-determination, particularly in the professional world, one of the key features of the Women's movement?

Women whose husbands are in the bottom fifth of the labor force also tend, when working, to make incomes that place them in the bottom fifth of the labor force. In other words, there aren't many female stockbrokers married to male day laborers. For these people, the cost of full-time child care is as much as their potential salary would be. Thus, it is more economical for these women to stay home.

There are other effects one should consider. While housing is cheap in Buffalo, it is also hard to find a job there. Housing costs are high in part, because housing is part of the cost of buying access to a job, just as one buys access to a school system.

There are areas where housing is relatively cheap, and jobs relatively available, but they are usually areas with high government spending per capita. As the population grows, the relative advantage shrinks. Exurb becomes suburb, and of course, the anti-tax, pro-government subsidy folks scream bloody murder.

There are political ramifications. Areas with jobs and expensive housing tend to vote blue, while areas without jobs and areas without expensive housing tend to vote red. It's basically the blue free enterprise zones versus the government subsidized areas and the wannnabes. Germany has a similar situation, for slightly different historical reasons, but no one has a good sense of what to do about it in the short run.

P.S. I'm glad to see that people are recognizing and crediting the effects of Ronald Reagan's great feminist experiment. When he fired the strikers at Patco, that was the signal for women to go to work, and we live with the consequences today. 

I may not have stated that as well as I could have.  But needing to work and wanting to work are not mutually exclusive.  I need to work to make ends meet.  I also enjoy my work.  The same is true for many if not most women.  My point is that the ratio of average home price to one typical annual wage for one full time worker has approximately doubled over the past twenty years. 

The statistics are tough to tease apart: according to the Federal Reserve Board the average mortgage rate in 1985 [the NYT base year] was 12.42% whereas it was 5.77% for the twelve months ended in October 2005.  This means that in 1985 it cost roughly $1,061 to finance each $100,000 of mortgage, but only $584 in 2005.  So if wages and house prices were the same in both years, affordability would have increased by 45% just because of a decline in interest rates.  The fact that we didn't see that level of affordability increase is because wages and house prices did change: median household income rose by 12% since 1985 [adjusted for inflation] and house prices more than doubled [the Fed house price index shows that prices are now 273% of their 1980 price ... I didn't have time to look for the 1985 index!].
Looking at these numbers I'd say that lax monetary policy helped prop up affordability in the face of weak income growth, but it also allowed an asset price bubble to emerge so that a significant portion of the increased affordability was lost to price increases [as a wealth transfer from new buyers to older prior owners].  This laxity of monetary policy was due to the fact that asset prices such as for houses are not part of the Consumer Price Index and are thus ignored by the Fed when they are using interest rates to control inflation.  Only now, after the dot com debacle and the current house price bubble, is the Fed even debating whether asset prices should be accounted for in the inflation index.  So we have to ask whether the increased affordability is 'lasting' given the likely upward direction of interest rates over the next few years.
The disussion here about the emergence of two wage earner families is subsumed into these numbers.  Interestingly, male worker incomes rose only about 2% [after inflation] over the last 20 years, whereas female incomes rose 19%, so to the extent that wages played any role in increased affordability it was due to a combination of increased female workforce participation and their wage gains.
As an aside: the ratio of median incomes to mean incomes changed radically since 1985.  As I mentioned above median incomes rose 12%, but mean incomes rose by 24%.  In other words affordability for the wealthy rose far more than it did for the lower paid.

My dad graduated college with a B.A. in Chemistry in May of 1962. He got an entry-level job appropriate for his education, which paid about $5K/yr. Before he married my mother in November 1963, the two of them (mom also had just earned a B.S. in Chemistry and was likewise employed) bought a small, brand-new house (with no help from their parents and putting about $1K down) about 30 miles south of their jobs in northern NJ.  Back then the commute was considered extreme, today it's considered average. The reason they bought the house before getting married was that back then a wife's income was blatently disregarded since she'd surely get pregnant and drop out of the workforce. Which is exactly what my mom did.

Anyway, that house cost $16K which was roughly 3x my dad's gross income - at a time when his take-home pay was nearly 90% of his gross. Even though my mom didn't go back to work, even part-time, until 1975 or so, dad's income kept us at lower middle class.

Fast forward to 1988, when I got my B.S. in Marketing. My starting pay was $24K/yr, which was a bit above average for that time and in the same geographical area as my parents' experience. I ended up renting, with roommates, as the only thing available for $72K (using the same 3x as in 1963 above) was an empty lot. And at the time I was taking home about 70% of that $24K - nowhere near the 90% my dad was getting.

Forward to late 1996. Small, 3-bedroom ranch houses that were bought new by blue-collar 20-somethings in the early 1960s are now going for north of $200K - definitely out of reach of any 20-something blue collar worker that I knew of. My wife and I, educated and with white-collar jobs, not to mention being ten years older than the original purchasers of these houses, bought one of these small starter homes just before the housing prices really took off.

Today these houses start at well over $400K (and that's for one that has no improvements or expansion since being built in the early 1960s; improved homes go for well over $500K and the much-larger, much newer homes in the area start around $800K). So who's buying them now? Damned if I know. Applying the same 3x rule I used before, an income of $160K would be required, which is what two well-paid middle managers might be getting. Even with 20% down (that's a hundred grand in cash!) that's a $400K mortgage. Yikes!!

I think this is an excellent illustration of how much things have changed in the past 30-40 years. I leave it to armchair economists to explain why.

I actually ran some numbers on this. I calculated the annual cost of a mortgage on a newly purchased house in terms of hours worked for each year since 1964. I was wrong about Reagan. The cost was going up in the late 1970s and it peaked in 1981. In the 1960s the median was about 30% of one's hours went towards the mortgage. In 1981 it peaked near 75%. All through the 1990s and into the 2000s it was about 40%. This is higher than in the 1960s and 1970s, but lower than the 1980s. A single earner family is worse off than it was back in the Leave It To Beaver Days, but nowhere near as bad off as in the age of Falconcrest.

My report and data are at http://www.kaleberg.com/househours/

SECTION: Section A; Column 1; Editorial Desk; Pg. 13

LENGTH: 734 words

HEADLINE: No Bubble Trouble?

BYLINE: By PAUL KRUGMAN

BODY:



So if we want to ask whether housing values make sense, data on the median house nationwide are irrelevant. We need to focus on houses in the Zoned Zone. And there the numbers are anything but reassuring.

In the Zoned Zone, the story that rising home prices have been offset by falling interest rates is all wrong: prices have risen so much that housing has become much less affordable. According to Economy.com, the cost of owning a home in the New York metropolitan area went from 25 percent of median income in 2000 to 38 percent today. In Miami, the numbers were 21 percent and 42 percent, respectively; in Los Angeles, 31 percent and 55 percent.

Even so, the current cost of owning a home in the Zoned Zone isn't entirely unprecedented. Roughly similar percentages of median family income were needed to afford houses in the early 1980's.

But that's hardly a comforting comparison, which is where the economic history comes in. You see, the unaffordability of housing in the early 1980's led to an epic collapse in the housing industry. Housing starts fell from more than 2 million in 1978 to only 1.06 million in 1982. And the housing implosion was one of the main factors in the worst economic slump since the Great Depression, which brought the unemployment rate to a peak of 10.8 percent at the end of 1982.

It's also worth noting that the reason housing was so expensive in 1981 and 1982 was that mortgage interest rates were extremely high. That made recovery easy, because all it took to make housing affordable again was for interest rates to return to normal levels.

This time, with interest rates already low by historical standards, restoring affordability will require a big fall in housing prices.

So here's the bottom line: yes, northern Virginia, there is a housing bubble. (Northern Virginia, not Virginia as a whole. Only the Washington suburbs are in the Zoned Zone.) Part of the rise in housing values since 2000 was justified given the fall in interest rates, but at this point the overall market value of housing has lost touch with economic reality. And there's a nasty correction ahead.