Think about this: In the late 60s I worked temp jobs, mostly as a file clerk for about $4, sometimes $4.50, an hour, while attending school part time. I tried to get enough hours to make in the range of $200-$250 a month. I was able to live independently in a one bedroom apartment in a decent neighborhood in San Franciso, pay for tuition, books, utilities, phone, etc. I couldn't affort a car, but I managed to clothe and feed myself, entertain a little, have some fun. I can't imagine any 19 year old, even in a full time entry level job, doing the same today.

Or, think about this: In 1976, the year my son was born, my husband and I earned a little under $20,000. We were self-employed with no health insurance. We easily paid cash for my hospital stay, delivery and doctor's care during my pregnancy. The doctor charged $350, the hospital $300 (we got a $100 discount from the hospital because we paid cash). This was in Marin County.

Can't comment on the broad theme and I don't golf, but I am involved with a foundation that helps get underprivileged kids summer jobs and awards them college scholarships of $1,000 -$5,000 if they do well in those jobs over more than one summer, stay on track in school, etc. One of those jobs is as caddies and those caddies average MORE than $15 / hour (and the best can reach over $20 / hour) over the course of a summer, taking into account wages, tips and scholarship awards. Wages and tips range $10 - 15 an hour and the award equates on average to $3 - 8 per hour, (award is untaxed so fully loaded would be equal to maybe $3.50 - 9/ hour) fwiw).
I do not argue that is the rule - I have no idea - but I know the categorical proposition from the pizza guy is factually wrong -- as so many generalizations unsupported by first- hand empirical research seem to be. Bottom line: look forward to the research, but get better anecdotes.

I think it's an excellent measure because salaries are as localized as housing. People need housing no matter how much it costs, and housing is usually your biggest cost, so if housing costs go through the roof (as they have) and salaries don't keep up (as they haven't), we've got a big problem (which we do).

Volatility is why it's a good measure. If it were the price of golf balls or even pizza, then I'd agree. But the real measure of inflation is the cost of housing, food and energy - all volatile indicators, but all things that people have to buy, as opposed to golf balls and pizzas.

Re: But the real measure of inflation is the cost of housing, food and energy - all volatile indicators, but all things that people have to buy, as opposed to golf balls and pizzas.

While people do not eat golf balls, they do eat pizzas so pizza counts as food.

All of which brings up a good question: why have housing prices increased so much while pizza prices have not? If the run-up in housing prices is due to, say population increase, shouldn't that affect the price of pizza too?
Nor am I aware of any technological advances that have made pizza (or its ingedients) significantly easier and thus cheaper to prepare.

Comparing prices across time can be tricky because even within the same category, today's examples are often significantly different from those of the past.

This may not be true for golf balls or pizza, but look at housing. The average home today is roomier and often is more energy-efficient and has a better floorplan than houses of 40 years ago. The cars of 40 years ago may look cool today, but they were environmental nightmares and deathtraps in an accident. Prices for health care can be astronomical today, but does anybody want to go back to 40-year-old health-care technology?

This doesn't invalidate Prof. Warren's thesis, but it makes it harder to quantify.

Obviously, I'm wasting my time as a 41 year old technical writer with a 4 year degree, if I'm only make $4 an hour more than underpriveleged high school kids carrying golf bags.

I think housing is a good measure.

When my parents bought their first house in 1967, it cost $13,000. That was a little more than what my father was making a year before taxes.

That house was comparible in size and neighborhood as my current house. Actually, my current house in a considerable less desirable neighborhood than the house I grew up in.

I would have to be making $142,000 a year to be even with my father. Needless to say, I'm barely making a third so much. The house I grew up in, now in a bad neighborhood, will still run you about 90K, over twice what I make.

He was 27. I am 41. When he was 41, in 1981, he was making more than I make today, and his mortgage was a quarter of what I'm paying today. Cars, utilities, pizzas - everything was significantly lower than it is today.

He was able to retire at 55. I'll be lucky if I can afford to retire when I'm 70, because with a 30 year mortgage, I'll still be paying for my house when I'm 70.

Perhaps Americans are mistaken to compare the post-WWII boom years to today. That was an unprecidented time in world/national history, when America gained a global monopoly in many industries. It took Europe and Japan until the 70's to catch up, and now China/India are in the race.

With a global population boom, we're expected to add another 100 million people by the year 2050, so real estate prices are only going in one direction. $ 250 a month apartment rent is a nice memory at this point.

21st Century reality for young people will not be like their parents. In some ways it is better -- other ways it will be much harder.

He says

The beauty of the pizza measure of wealth is that pizzas haven't changed

But is that really true? He says circa 1970. I grew up in Milwaukee, not a small town, but not "urbane" as to tastes in food. I remember it as accessibility to pizza as a fast food really started in flyover country, excluding Chicago, perhaps 5 years earlier. There was no such thing as inexpensive "fast food," only Chinese take out (an expensive, exotic treat for most families,) until the McDonald's revolution began in 1955, which didn't really get widespread for another decade. Previous to 1970, getting a burger or a pizza meant going to a sit-down restaurant or drive-in, a luxury which middle class post-war boom families with children did not indulge in often. If you went on a road trip, you took along sandwiches and snacks from the grocery store because "eating out" was too expensive.

I am bringing this all up because I think pizza was basically still considered a luxury item back then compared to the cost of other food, something a teen might indulge in with his spending money, but not a basic. And these days, even quite low income people find lots of "fast food" nearly as affordable as what they can make at home, so pizza just doesn't strike me as a good indicator of "affordable quality of life" or whatever you're trying to look at in the time period you're using, its "value," and more importantly, its market, really has not been standard over that time.

Isn't this type of thing difficult on an individual item basis because the markets for individual items change, especially if you're going to relate it to class issues? Tastes of classes and what they spend money on changes, and that affects price and product. But I do look forward to more of what you're looking at on this topic, it's very interesting.

"The only fifteen year olds earning that kind of money are in drugs or prostitution."

Well, or computer programming, actually.

ArtA, maybe it's where you grew up. For me in New York, I always thought of pizza as the ultimate cheap meal. But do bear in mind that this isn't really the point. In effect, she takes all that into account by refusing to compare apples to oranges, just pizza to pizza. 

John

http://www.haberarts.com/

by making her sound privileged.

she is privledged and, most likely, out of touch; she has no recent first hand knowledge of poverty.

Or perhaps Brook isn't taking seriously the math that Warren's source has bothered to do.

the problem with their analysis is "income varies widely." on the "housing panic blog," somebody looked at the salaries in one particular californian county and concluded that 37% of the residents made over $100,000 a year.

my grandmother, who's on a fixed income, buys pizzas (genos or tonys) for $1.00 at the store. "going out to eat" has always been a luxary. my homemade tortilla pizzas probably cost less!

understanding poverty and financial stress, in my mind, isn't as easy as warren makes it out to be.

ADDED- I saw this on wsj.com:

Record-Breaking Budget Ohio State has the largest athletic budget. What do you get for $109 million?

it's amazing that academia wastes big money on sports while the US can't afford s-chip.

do these numbers show misplaced priorities by the nations brightest? and best?

To boldly go...

Yes, but agriculture is totally different because the government has subsidized massive over production of foodstuffs (supply side), which brings prices down. When it comes to housing, the government has provided massive injections of cash for buyers (demand side) over the last 10-15 years at a rate far above the growth in available housing units. Excess supply on the buyer's side leads to price inflation even when there is certainly no scarcity of housing and the existing inventory is relatively old or of low quality. The government has provided this subsidy to win the confidence of bankers, insurance agents, home builders, real estate brokers, and Boomers looking to maximize their equity right before retirement. First-time buyers be damned.

--
Tenacious D.
Empire of Liberty

I think it's an excellent measure because salaries are as localized as housing.

and my point is that this still in no way allows you any greater ability to make generalizations beyond the local.

Volatility is why it's a good measure.

its volatility means that your generalizations again are limited to sector - it tells you about what housing is doing more than it can tell about what wages are doing.

the point isn't that the relationship between housing and wages isn't important - it most certainly is (in some cases 'alarming' would be a better term). but that relationship can be vastly different depending on where you live.

i'm not sure what people in california are paying has to do with whether or not it is a good time to buy in minnesota... but the part of the conversation that is usually understood as implicit when discussing whether or not it is a good time to buy is: IF you are planning to buy sometime in the near future.

re: coleman's bill that would allow people to avoid foreclosure by giving them a 3-year tax/penalty-free window to borrow from their 401k funds... do you really think people should get foreclosed rather than be able to borrow some of their own savings without taxes and penalties?? if people find themselves in the situation of having to choose between foreclosure and borrowing from their 401k, even if it means taxes and penalties, most folks will still choose to borrow from the 401k.

i suppose i have a hard time understanding your opposition to this proposal because i guess i don't really take seriously your fight club-style apocalypse fantasy. but i guess if you want people to get foreclosed, it would make sense to oppose any measures that make it easier to avoid foreclosure.

btw where did you get your statistics for income/housing ratios in minnesota? i'm curious.

FYI: I think this article [is the source] and I agree with you that the 50% was a misquote.

However, the article highlights that "financial stress" is rising-- at a quick rate, and, in my opinion, that stress will cap "home prices" unless salaries go up.

i.e. between 2000 and 2006, the "percent of financially stressed buyers" rose from 20% to 35%. With ARM resets, that number could really jump in the next year...

To boldly go...

most of this injection of cash was loaned for first time buyers, tenacious. The whole Fannie Mae program is designed to get Americans out of rent and into a home. Housing prices have risen steadily and will continue to do so, because the overall population of the country is growing, so any over-capacity glut is temporary.

we've got a great place where i live -- an all-day buffet all the pizza and salad you can eat with a drink for $ 6. It is still the ultimate cheap meal.

Re: with ARMS resetting, those numbers will be bumped up systematically...

Most homewoners even today have fixed mortgages not ARMs.

Henry Paulson's comments:

As I mentioned earlier, mortgage defaults and foreclosures are rising. While the delinquency rate today is near the 2001 rate, there are over seven times more subprime mortgages today than there were in 2001. At the end of the second quarter of this year, more than 900,000 subprime loans were at least 30 days delinquent. Foreclosures are also up significantly – increasing about 50 percent from 2000 to 2006. Foreclosures on subprime loans are up over 200 percent in that same period. Current trends suggest there will be just over 1 million foreclosure starts this year - of which 620,000 are subprime.

AND

Of the approximately 50 million outstanding mortgages in the U.S. today, approximately 10 million are subprime loans.

AND

Yet, the problem today is not limited to subprime mortgages as the number of homeowners having trouble making payments on prime mortgages is also increasing.

WSJ: source

To boldly go...

Japan is not America. They have some of the tightest immigration controls of any Western nation, and their birth rate is plummeting. Their population will recede by tens of millions, while ours will grow by tens of millions, and that will soak up any boomer glut on the market.

Several things have changed since the 50s. Housing in general is larger, and houses today have more amenities (e.g., central air, microwaves, heavy-duty wiring) and more energy-efficient construction.

Land prices have also been affected. In the 50s, there was lots more buildable land, especially near urban areas. Today, people pay premiums for short commutes. Even land in distant areas is affected by things such as restictive zoning and environmental regulations that didn't exist 50 years ago.

Re: Housing in general is larger, and houses today have more amenities

Housing in the 50s was an improvement over the housing of earlier times too: running water, indoor plumbing and central heating for example.

"If it weren't for immigration we'd be at ZPG, or slightly under."

It doesn't matter where the growth comes from -- we will be a 400 million citizen natiion in the next 25 years, and real estate prices are going only in one direction -- up!

it's sort of condescending to label all immigrants as impoverished. America attracts immigrants at every class level, and the falling dollar has made real estate very attractive here for Europeans and especially Brits. I'm putting my money in real estate.

None of which refutes my point...

No, of course not. I only suggesteded that I expect the number of stressed home buyers to go up and I still do.

where people bought houses to flip, rather than people who bought houses to occupy.

right. and now they have an albatross around their neck. as ross perot once said: "I hear the sucking sound."

but let's not turn into Chicken Little. Most people with mortgages will come through this crisis quite OK.

that's your choice. I'm certainly not looking to buy; I'd rather retire at a younger age then attached to a bunch of logs and glass on a small patch of grass.

To boldly go...

rule of good investing JP -- buy when there is blood on the floor and nobody else wants it. Everybody is on the energy bandwagon, which means it's peaked already. I just read a report on home builders stocks this morning with a strong buy recommendation. A 3 yr hold on these stocks should see very nice returns.

I got a nice investment property for you. You can take it off my hands for what I currently owe, and maybe in ten years you'll be able to sell it for that much.