A 10% down on $35,900 was $3,590 or 1,975 hours of minimum wage work. At 40 hours a week, that means 49.375 weeks of work saving every penny. Not a reasonable action since you still have to, you know, LIVE and stuff. But that gives us something to compare with today. The full house would be 17,950 hours of minimum wage work or 448.75 weeks, 8.63 years.
So that 10% down of $41,690 is now 5,750 hours of minimum wage work. More than double the 1,975 hours it was in 1974. In order for it to be 1,975 hours, the minimum wage would have to be $21.11 per hour.
The full house? 57,503 hours of minimum wage work at $7.25 an hour (1,438 weeks or 27.6 years), again, more than double the 17,950 hours needed to pay off a 1974 house. In order to pay off a $416,900 house in 17,950 hours, the minimum wage would need to be $23.23 per hour.
I think something important missing here from the maths is that taking longer to buy the house makes it astronomically more expensive due to compound interest on your mortgage.
A lower wage means you’re more likely to only make minimum payments on your mortgage, and thus spend more money on interest.
On a 30 year mortgage on the average house, 6.73% interest rate (average in 2024), the total repayments come to $996,840, which is 137,500 hours, or 66 years of minimum wage work at 40 hours a week. Sure seems like a problem when that’s longer than the term of the mortgage - at minimum wage you can’t outpace the mortgage rates
Completing the same calculations with a 30 year mortgage in 1974 gives us a house costing a total of $90,457, or 22 years of minimum wage work. Still a little ridiculous, but doable on 2 incomes.
I think a further thing to point out in this math… is we’d also need to take into account average transportation and food expenses. Because while I’m not smart enough to do the math to calculate it out. On top of say housing relative to income doubling. Prices of necessities also need to be calculated out. If housing costs scaled with wages, but food cost doubled wages, that would still be a large factor on buying power.
Most items have at least doubled in price since then, so it’s a good thing to point out. Hell, the price of Taco Bell has doubled since the 90s alone. College prices have risen more than 1,000%.
Add on that we also have more expenses considered “essential” today as well. Things like the internet and cell phones didn’t exist in the 70s, and are incredibly important to simply keeping a job today.
Agreed, though also does need to be scaled with the time you are comparing to’s essentials as well. IE land line phones were essential before we reached a point where cellphones are allowed to be used for similar services. But yeah fully agreed in modern times… Essential living cost should be
I still think the key flaw in thinking for 1974 or 2025 is that minimum wage was never intended to be able to purchase a home. Rent an apartment with room-mates? Sure. But nobody earning minimum wage at any point should expect to be able to buy a home. It’s literally the minimum.
The federal minumum wage in 1970 was $1.60 an hour.
So at 40 hours a week, you were making $268.80 a month, your rent was 40% of your income. Rule of thumb is 33% so you’re over, but still functional. Got a room-mate? 100% doable.
Now the average apartment is $1,378 for a 2 bedroom.
Mortgages don’t typically involve compound interest, unless you miss payments. In order to actually pay off the mortgage the payment has to be higher the the interest for the same period. It’s expensive because borrowing money for 30 years is expensive even at low rates.
Used to be if you didn’t put 20% down, you would have to get PMI, which was an additional monthly charge (though still worth it because that’s way better than paying rent.)
I put just under 8% down on my house and the PMI is negligible. Mortgage is $2,000 a month and IIRC, PMI is like $100. Homeowners insurance is worse, hell, my CAR insurance is worse.
Well, let’s do the math on that, arbitrarily picking 1974, because that’s the year my wife was born:
The median home price was $35,900 in 1974:
https://www.huduser.gov/periodicals/ushmc/winter2001/histdat08.htm
The federal minimum wage was $2.00 an hour.
https://www.dol.gov/agencies/whd/minimum-wage/history
A 10% down on $35,900 was $3,590 or 1,975 hours of minimum wage work. At 40 hours a week, that means 49.375 weeks of work saving every penny. Not a reasonable action since you still have to, you know, LIVE and stuff. But that gives us something to compare with today. The full house would be 17,950 hours of minimum wage work or 448.75 weeks, 8.63 years.
Today, the median home price is $416,900:
https://www.fool.com/money/research/average-house-price-state/
The federal minimum wage is $7.25 an hour.
https://www.dol.gov/general/topic/wages/minimumwage
So that 10% down of $41,690 is now 5,750 hours of minimum wage work. More than double the 1,975 hours it was in 1974. In order for it to be 1,975 hours, the minimum wage would have to be $21.11 per hour.
The full house? 57,503 hours of minimum wage work at $7.25 an hour (1,438 weeks or 27.6 years), again, more than double the 17,950 hours needed to pay off a 1974 house. In order to pay off a $416,900 house in 17,950 hours, the minimum wage would need to be $23.23 per hour.
I think something important missing here from the maths is that taking longer to buy the house makes it astronomically more expensive due to compound interest on your mortgage.
A lower wage means you’re more likely to only make minimum payments on your mortgage, and thus spend more money on interest.
On a 30 year mortgage on the average house, 6.73% interest rate (average in 2024), the total repayments come to $996,840, which is 137,500 hours, or 66 years of minimum wage work at 40 hours a week. Sure seems like a problem when that’s longer than the term of the mortgage - at minimum wage you can’t outpace the mortgage rates
Completing the same calculations with a 30 year mortgage in 1974 gives us a house costing a total of $90,457, or 22 years of minimum wage work. Still a little ridiculous, but doable on 2 incomes.
I think a further thing to point out in this math… is we’d also need to take into account average transportation and food expenses. Because while I’m not smart enough to do the math to calculate it out. On top of say housing relative to income doubling. Prices of necessities also need to be calculated out. If housing costs scaled with wages, but food cost doubled wages, that would still be a large factor on buying power.
Most items have at least doubled in price since then, so it’s a good thing to point out. Hell, the price of Taco Bell has doubled since the 90s alone. College prices have risen more than 1,000%.
Add on that we also have more expenses considered “essential” today as well. Things like the internet and cell phones didn’t exist in the 70s, and are incredibly important to simply keeping a job today.
Agreed, though also does need to be scaled with the time you are comparing to’s essentials as well. IE land line phones were essential before we reached a point where cellphones are allowed to be used for similar services. But yeah fully agreed in modern times… Essential living cost should be
“Food”
“Rent/Housing”
“Utilities” (IE power/water/Sewage etc…)
“transportation”
“Internet + Celphone”.
I still think the key flaw in thinking for 1974 or 2025 is that minimum wage was never intended to be able to purchase a home. Rent an apartment with room-mates? Sure. But nobody earning minimum wage at any point should expect to be able to buy a home. It’s literally the minimum.
In 1970 you could rent an apartment for $108.
https://www2.census.gov/programs-surveys/decennial/tables/time-series/census-housing-tables/grossrents.pdf
The federal minumum wage in 1970 was $1.60 an hour.
So at 40 hours a week, you were making $268.80 a month, your rent was 40% of your income. Rule of thumb is 33% so you’re over, but still functional. Got a room-mate? 100% doable.
Now the average apartment is $1,378 for a 2 bedroom.
https://www.statista.com/statistics/1063502/average-monthly-apartment-rent-usa/
With the federal minimum wage of $7.25, you’re only making $1,218 a month. You’re underwater at that point. Rent is 113% your income.
With 2 bedrooms, to get it to 1970 levels, it would have to be rented by 3 people, 3,654 monthly income, rent would be around 37% the combined income.
Mortgages don’t typically involve compound interest, unless you miss payments. In order to actually pay off the mortgage the payment has to be higher the the interest for the same period. It’s expensive because borrowing money for 30 years is expensive even at low rates.
it warms my heart everytime i see that i inspired a nerd to comment a whole phone screen of maths 🥲
Do you have math behind this posting? Or is your number randomly generated?
FYI, that’s more than triple.
17,950 * 3 = 53,850 < 57,503
Many questions here.
But what is this 10% down?
Used to be if you didn’t put 20% down, you would have to get PMI, which was an additional monthly charge (though still worth it because that’s way better than paying rent.)
I put just under 8% down on my house and the PMI is negligible. Mortgage is $2,000 a month and IIRC, PMI is like $100. Homeowners insurance is worse, hell, my CAR insurance is worse.