



The true cost of a mortgage over the last 30 years, what bubble?




The above chart represents data from the following sources; (Data available on one spreadsheet.)
From the US Census Bureau, I pulled income data. The data was offered as 'fifths', so I chose to use the second fifth, the household income level where 40% of households made less, 60% made more. Choosing the higher fifth would not have changed the shape of my chart above.
Next, I used median home price data from the National Association of Realtors, the numbers were slightly different than my first analysis, but still reflect the trend in home prices.
Lastly, Freddie Mac provided 30 yr fixed mortgage rate data going back to 1971, so this is where I began the chart. Clearly, 1981 was a bubble, but median prices did not fall, the growth merely slowed down.
I took the median home price for each year, and using the 30 year mortgage rate, calculated the monthly payment required for the house. I made the calculation using 80% of the home's cost, as 20% down is prudent. Lastly, by converting median income into an hourly rate I then calculated the number of hours per month a family would need to spend to cover their mortgage. Now, what is most striking to me is that the Shiller chart does have a 1981 spike, but then another a few years later, and a run up that certainly looks like a bubble. Yet my chart shows a 1981 peak, but then it's all down from there. The 90s show no such exuberance. (please see the Shiller chart I refer to) Until next month, JOE 







