The 1970’s was a dramatic decade of change
transitioning every aspect of our lives. We of course didn’t realize the shifts
or nudges or 2 x 4’s immediately but most seems very apparent today.
Since starting my blog in 2008, I have been
saying that “As housing goes….so goes the economy”. This has been the pattern
coming out of every recession since the first one that I experienced in early
1970. Not so much anymore.
I will try to present my views on how the 1970’s has affected housing
and how housing will not be the answer to our economic woes.
The framework in which to review how we have
changed as a country, we must first review the national policies and personal
failures of our leaders. Our view of the federal government changed in the
‘70’s and has been going downhill ever since. The problem, we continue to send
the same politicians to do the same job over and over again but expect
different results…..we are insane!
Our trust disappeared in our leaders
starting with Richard Nixon and then entered Carter which did not change our
opinion. The stagflation era (could we be heading in this direction ---now?)
under the Carter Administration put stress on the family and their finances. To
buy a house, your interest rate was well over 15% and the only way to afford a
home was to have 2-income earners. (Source
of quotes is unknown)
"One important
adaptation to the rising cost of housing is found in the increasing appearance of two-earner
households... The second income provided more
than 30% of total household income "
"First time buying households were even more dependent on a second
income... It seems clear that the second income was made it possible to
accommodate rising housing costs as a higher proportion of the total household
income. Thus the growing importance of the second earner is a major factor in
the continued affordability of home ownership”
2-income
families increased about 20% since 1970. 50% of that increase occurred during
the 1970’s. The balance of the shift occurred over the next 30-years.
In
a previous blog post, I outlined the median price of homes changes by decade.
Do you know that the median price of a home in 1970 was $23,400!
In
1980, the median price of a home in the US was $169,000.
What
is your opinion on why such a significant jump?
Inflation
did have a role in the increase of prices but I believe the 2-income family was
the basis in which families could qualify for a mortgage even with interest
rates around 18%.
Can
you imagine if the Fed today would raise interest rates to 6% …… we would go
into a depression!
The
change in the family to a 2-income family caused the median price of homes to
skyrocket. In the ‘70’s, the move-up market was created! The second income
added over 30% to the available income to be qualified for a home
mortgage. The housing market shifted
over night as builders built homes to meet the demand primarily driven by
available family income – the market changed!
1970 - 1979 2010-2012
Prime Rate 12% 3.25%
SF Housing Starts 888,100 800,000
US Population 213,300,000 314,000,000
Home Ownership Rate 64.4% 65.3%
Participation Rate 61% 64.0%
Please
tell me that you see the stark differences between 1970 and 2012
but
also see the deep concern in the differences. This is not going to end well for
the housing industry.
Little
did we know that the 70’s would change us forever!
Live: we started to
live further out from urban cores; “nice but not necessary” not practiced;
today, vertical mixed use developments are the modern small town America
Work: Mom’s and Dad’s
started to both work; today over 50% of mothers and over 50% single parents
with preschool children are employed outside the home; hand held calculators in
the 70’s to iPads now
Shop: Walmart went
national in the 70’s; from the JC Penny catalog and Woolworths to internet
shopping
Play: HBO was founded
in 1972 and ESPN in 1979. Today, technology overload. Eyes clued to a screen
rather than playing outside.
