Pat Coghlan

It's true that dual-income families have raised the price of an "average" home to $300K+, but in the 80's there were still lots of boomers coming into the market. I don't think that's true today, given that the youngest boomers are 33+. Under normal circumstances, $300K+ home prices are affordable for families with a $100K+ combined income, but I don't think there are enough of them entering the workforce these days to sustain these price levels.

A rapid drop in the US$ would put the US in a depression because it would destroy credit markets, and the US economy lives on credit. Hedge funds have been borrowing hundreds of billions from Japan @ 1% interest and investing in dollar denominated financial instruments at much higher interest rates. If those loans suddenly became 10% (let alone 50%) more expensive to pay back, there would be a run on the US banking/financial system which would trigger its collapse. Japan has already indicated that it doesn't want to see the US$ drop much below 118 yen.

Sub-primes are only the *first* links in the chain to go. The more general problem is the number of adjustable-rate mortgages that were taken out. These "ARMs" had 2% interest rates for the first 2 years, after which time they ratchet up to market rates. I would put $350K at the high end of what a young couple with two incomes and no kids could hope to afford. Homes with an "average" price of $500K are out of reach of most people who have not been in the market for a long time, so you gotta wonder what's going to happen when many of those people want to sell (move/retire etc.). Here's a really good weekly podcast for those who are interested: http://www.financialsense.com/fsn/main.html

If you read the newspapers, everything's great, but I haven't met many people on the street lately who think so. It's not a good time to lay out $400K for a new house anywhere in Canada.

So, a $400K home will appreciate in price only $32K per year, rather than $52K. Tell me, when the homeowners want to sell their $500K-$600K home in a few years, who's going to be able to afford it???

Well, with the US mortgage crisis taking down global markets, what do people think is going to happen to those $400K+ house prices in Canada over the next 1-2 years?

OK, lets look at house prices relative to how much gold it would take to buy a house then an now.Using your previously posted gold values, a house worth $15918 in 1965 would require 455 oz of gold to purchase. 455oz of gold today is worth approximately $318,000. That is not dissimilar to today's price of an average house. Will, I maintain that if we still had one-income families, the prices of houses wouldn't be $300K+. I guess the point here is that two incomes have trapped families into requiring two incomes in order to maintain their standard of living. It will be difficult - if not impossible - to go back to the one-income family, at least for everyone but upper middle-class and beyond. Gold has not held its value. In 1980 gold was $800/oz and the Dow (or was it S&P) was also 800. The Dow reached 14,000 recently. Gold remains less than $800/oz. Central banks are keeping the price down.

I'm looking at the SAME house that sold in 1965 for $X which could be bought with an average salary of also $X. I gave an example of buying a $12,000 house with a $12,000 annual salary. Today, the SAME house costs over $300K, yet the average salary is, let's say, $40K. The price of the house has risen by a factor of 25, while the average (individual) salary has risen by a factor of only 3-4. I'm not saying that this is all due to most families having 2 incomes now, but a BIG PART of the increase is due to those second spouses now being in the workforce.

Start with ending the practice of pretending that either English or French can be used in the workplace and the resulting 1-2 years of language training for about 20% of employees ... most of which never gets used.

Ditto my neck of the woods. In 1964,my parents bought a house in Scarsdale, New York for $40,000, in line withi upper middle class incomes. In 1974, following my father's death and my mother's remarriage, we sold for $82,000, about 33% higher than similar incomes by that time. Women were fast catapulting into the work force. Recently, neighboring houses are changing hands at roughly $800,000, despite some rather significant disrepair. Very few people make that kind of money annually. My own townhouse, about 2/3 of the size of what I grew up in, is "worth" about $625,000. I won't reveal my income here, but trust me, I don't make that kind of money. When a couple of people told me that house prices in 1965 were roughly equal to a years salary, I couldn't believe it. Back in 1965, if there was only one income of, say $1,000 (after-tax) per month, a typical monthly budget *might* look something like: Shelter: $200 Property tax: $25 Food: $200 Utilities: $50 Transportation: $100 Insurance: $30 Doctor/dentist: $25 That still leaves about $350 for savings, entertainment, furniture/applicance purchases, clothing, tuition etc. That's like have an extra mortgage payment left over. No wonder people in those days could afford a cottage etc. Now, imagine if the same family had a second after-tax income of $500-$1000. Imagine how that could drive up demand and prices for housing in general. Now you understand how the price of your townhouse got to $650K in Toronto. Then ask yourself who from the next generation is going to be able to buy that house from you. I see a big problem coming. Really big.

Why is it you only look at the price to guage affordability? The interest rate plays a significant factor in affordability. If you look at Chart 1 you will see that housing affordability was as low in the late 90s as it was in the mid-80s. Even now while it is higher, it is not significantly so. Housing affordability in Canada I don't look at the price in isolation. I look at the price relative to family income, and am pointing out that not only have prices gone up faster than family incomes, but that the fact that most families now have two incomes is one of the primary reasons that prices have risen to current levels. Just FYI, I polled a couple of octogenarians re: house prices and salaries in the 1960s. Most memories are understandably not precise, but the general opinion seems to be that the price of a house was roughly equal to the primary (usually sole) wage earner's income. For example, in the mid-60s a senior clerk in the government made - I'm told - about $10K, and many houses could be purchased for close to that. Granted, they weren't the luxury homes being built today, but a close friend of my wife's family (a salesman) told me that he bought a 4-bdrm home in Mississauga in the 60s for $25K, and seemed to recall that his salary was about $30K. Extrapolating to today, that would mean that a small home in Toronto would fetch about $250K, and a senior government clerk would be earning $250K. Clearly, house prices have gone wild relative to personal & family incomes. Getting back to the title of this thread, I think this will spell a crisis within 5-10 years.

They're larger, but require much less labour to construct. Materials are also crappier (particle board vs plywood etc.). Carpenters use chainsaws. Modern technology enables larger houses to be built more cheaply. Are you suggesting that we've surpassed the previous 2.5 times gross income as the affordable price for a house because we're buying bigger houses?

House prices didn't rise swiftly when the majority of people were single income? Sure they did, but Dad's salary rose in unison. The standard rule that a family could afford a house roughly 2.5 times the gross family income applied. Today, house prices are roughly 4 times the primary wage earner's salary. With $300K and $400K (or higher) house prices, you can be sure that the families that are buying them don't have a single $150K income.

So price falls in the U.S. are also due to dual income families or that the market has been overbuilt? Or that mortgage rates have risen? Well, dual-income families certainly helped prices rise to the high levels from which they are now falling. Care to guess what's going to happen to those $1M homes in Calgary owned by plain old middle class folk?

Well, isn't that my point, that the price has been driven up by so many dual-income families? Most people are already "in" the market, and can simply "trade" houses at these high prices. Problem is, when they want to sell to newcomers to the market (new grads etc.), the prices are unaffordable. This is what happened to markets like San Francisco before 2000. Prices should have crashed then, but the US gov't dropped interest rates to 1% and lending institutions started giving $500K mortgages to anyone that had a pulse. Things have started to turn around, and will continue to do so until something like hyperinflation hits.

I'm talking my original house that I paid $71K for. It now sells for about $250K - perhaps more. The price of gold is a very good indicator of how prices have changed, i.e., if we take a look at what things cost or what people earned in terms of ounces of gold, I think we can get a better idea. In Ottawa, the grand prize at the end of the August exhibition was a 1,000 oz. bar of gold ($35,000). Today, that prize would be worth $700K.

You said it, Pat. But you provide no evidence. I provided statistics (and I'll provide links if you want.) I gave you the evidence in an earlier post. In the mid-80's, I was making $33K and bought a new 3 bdrm house for $71K. Today, a similar job (starting programmer) earns about $50K, and the same 3 bdrm house costs about $250K. Please explain how the houses are more affordable, if that's your position. Programmers didn't exist in the 50s, so I can't make a relative comparison, and I had a difficult time trying to find out what an industry job paid in the 60s so I could compare it to the average price of a house which, in Ottawa, was around $12K.

Pat, you are a pessimist. You believe that the future will be bad and you believe anyone who tells you what you want to believe.Lou Dobbs knows his market and he appeals to people like you. Pat, it's wise advise to ignore people who pander to your prejudices. What prejudices? Any opinion I hold is a result of having analyzed the facts. In this case, Lou Dobbs has the facts right. Those in power look mostly after their own interests, rather than the common interests. Now, back to this thread. ---- Well, as I said earlier. In the early 80's a 3 bdrm house I bought cost about twice a recent graduate's salary. Today it's about 4 times. The buying power of the 2007 new grad's salary is much less than the 1980 grad (relative to the price of a house) so without two incomes (now the norm) this could not have happened. Where did you get these figures? Are you suggesting that workers have more buying power today to purchase a house, based on their individual incomes? I would disagree. Also, remember that in the 1960s, if your gross earnings were $300/month, your net pay was about $270 (10% deductions, vs 30%+ today). --- Again, in the 1960s, a family with one income could purchase a home, a car, and sometimes even a cottage. Not possible today. Bottom line: while there would have still been inflation if most families had remained single-income, the price of housing wouldn't have gone as far out of reach as it has...unless you don't consider $1M for a 2500 sq. ft. house in Calgary out-of-reach.

I don't think that one necessarily follows the other. Yes, one necessarily follows the other. Without available and widespread purchasing power, the market wouldn't support the prices. The kind of family surplus necessary to afford that kind of purchasing power isn't generally available from one income. I'm sorry but this is basic economics. Available wealth doesn't cause prices to rise, demand casues prices to rise. The swell of baby boomers buying their first homes coupled with speculaters has more tp do with rising real estate than anything else. The entry of the second wage earner is a response to rising home prices, not the cause. Yes and no. Thinking about it, Nixon taking the US off the gold standard opened the floodgates on inflation, and I agree that rising prices forced many families to have both spouses in the workforce. That said, it has always been a rule-of-thumb that a family can afford to buy a house which costs approximately 2 1/2 times their gross annual income. I think this rule is more or less still true today. If the average house price in an area is $300,000, I think you can rest assured that it isn't because the "average" family found itself with a single $120K income. What I'm saying is, if house prices have moved up to this level, it could only have happened if family incomes also rose up into 6 figures. In general, that can only happen if most families have two incomes totalling $100K or more. Let me add that I'm talking "sustainable" housing prices here. Anything can happen in a boom (e.g. Calgary), but show me a stable housing market with an average home price of $300K, and I'll maintain that prices rose to that level as a result of high family incomes. If the majority of the families were all single-income when the average home price was $150K, the average price didn't gravitate up to $300K, requiring the second spouse to join the workforce. They gravitated up because the family incomes were already quite high.

Here's a weekly podcast which is really well done and which deals with economic issues facing North America: http://www.financialsense.com/fsn/main.html

Prices will also go up if families have more disposable income, and the best way to have more income is to have both spouses in the workforce. As a result, the birthrate has gone down significantly. See the stories in the media today about how rapidly our population is aging, with a predicted shortfall in new workers to replace those that will retire in 10 years. People had better enjoy their big houses now, because when they go to sell them there won't be a next generation with the numbers or incomes to purchase them.

The cost of housing is largely to blame. Absolutely. In the mid 60s my father, with overtime had a take home pay of $60 a week. We lived in montreal and rented a 3 bedroom flat which had a front and backyard, a basement and an attic. Our rent at that time ranged from $16 to $18 per month. Okay, so we agree that 2-income families have pushed up real estate prices to unaffordable levels. This can continue as long as these families remain in the market and can "trade". What happens when they start exiting the market? There's gonna be a collapse. No we don't agree. I do not for one second blame the necessity of two incomes for the rise of real estate prices. The factors affecting real estate are more complex than a pat answer allows. There is of course inflation in general, interest rates and the lasting effects of a speculative market in the 70s and 80s. On top of that the market saw new houses being built on a much larger scale than our parents would have thought proper. I have seen so called "starter homes" with foyers of more than a 100 sq ft and with ceilings over 20 ft tall. The reasons for this expense and extravagance is that they appeal to the eye of the first home buyer. Second home buyers it follows don't want wasted space or 20 ft ceilings to heat in winter...... Well, if you think about it, in the 60s most families had just one income. You could buy a house for $12,000. In the 70s, families started having 2 incomes. This trend really hit its stride in the 80s as the boomers started working. Which families do you think are buying these $400K+ homes today, single-income?

The cost of housing is largely to blame. Absolutely. In the mid 60s my father, with overtime had a take home pay of $60 a week. We lived in montreal and rented a 3 bedroom flat which had a front and backyard, a basement and an attic. Our rent at that time ranged from $16 to $18 per month. Okay, so we agree that 2-income families have pushed up real estate prices to unaffordable levels. This can continue as long as these families remain in the market and can "trade". What happens when they start exiting the market? There's gonna be a collapse.

How can you reconcile that against the fact that most families now require two incomes to survive? The unemployment rate is low, true, but that's because people have jobs that pay less. Last night I got an e-mail from a former colleague who used to be a high tech manager but now works for himself installing furnaces for 50% of his former salary. I know another EE who's been unemployed for 5 years. Many people in my neighbourhood (Ottawa) have to work in Toronto and commute on the weekends. Our dollar hasn't really changed relative to the Euro over the past 5 years. It's the US dollar that has collapsed. See http://quotes.ino.com/chart/?s=NYBOT_DX&v=d12. The US dollar index has NEVER been below 80, but it's almost there now. You can't have a successful country without a successful middle class, and the latter is being beaten up from all sides. Just wait a couple of more years. In the mean time, read Attack On The Middle Class by Lou Dobbs.

Is it the responsibility of government to bail out a company that made a wrong judgement on what product they make? Who's fault is it that someone with a high school education has no skills except the skill of putting nuts and bolts on autos? Should they not take responsibility for themselves? Do we owe these people a guarantee of a high paying non skilled job? Automobiles are a consumer item and like any consumer items the consumer picks what they want. If a consumer isn't convinced a product is worth purchasing,the manufacturer has two choices, get out of the business or make a product the consumer will buy. You should read Lou Dobb's book, "War On The Middle Class". As he states, US (and Canadian) workers are being put in direct competition with Asian and Mexican workers. How can we continue to expect free education, free health care, and all the modern conveniences we have here if we drive wages back down to $12K/year, as they are in those other countries. Your example of Toyota is not a good example. In Japan, workers make wages comparable to those in Canada/US, not $12K/year as in China. It *makes sense* for them to build the cars here. Do you see China planning to build their Chery cars here? They couldn't compete if they did. Make no mistake, we are being sold out by corporate interests in Canada/US, who don't care where they manufacture and sell their products. The Conrad Black story illustrates how the guys at the top make off with millions or hundreds of millions of dollars - because the system allows them to. Sure, we should have some competition from the far east. Heck, I bought a nice little piston air compressor at Costco on sale for $94 that was made in China. On the other hand, I have a friend who is a manager at Nortel and he's being asked to move work to China as fast as he can. In fact, he's been told to GO there for a couple of years...after which they'll probably lay him off. I firmly believe that "everything in moderation" is a good rule to operate by, and that is NOT what is happening in the world of manufacturing and the outsourcing of jobs overseas.