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 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.
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 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.