Did you hear the news? The median price for a home is now $404,000 as of August 2021. While homeowners are rejoicing for their new found wealth, smart home owners are lamenting the upcoming increase in home ownership. The main drivers of cost in home ownership are property taxes, interest on loans and HOA fees. As the home gets older, maintenance becomes an issue but that’s down the line and often a one time expense for key things like a roof or foundation repair.
Did you also here the median wage for Americans is about $1000 per week or $4000/month.
We also heard that the wage growth has roughly averaged about 3% per year over the past 20 years.
So we decided to do some maths. If the median cost of a home is $404,000 and the median wage is $48,000 per year and the average rate of growth for wages is 3% but the average growth rate for housing is 5% then these two data sets diverge.
We came up with this table to try to make sense of it all and then we had to stop…
We had to stop because it became very clear that based on current simple assumptions of 3% growth in labor wages and 5% growth in housing and increases to costs in health insurance that America will be bankrupt in the late 2020s or early 2030s if nothing else changes. We didn’t even bother with other expenses such as energy, food, education, income taxes, vehicles, and basic goods and services because it is clear that the current system is no longer sustainable. We provided links to all the relevant data, feel free to do your own due diligence and make your own assumptions. Our analysis didn’t even include any pessimistic scenarios, we simply extended current data into the future.
Housing, Health insurance and low wage growth will cause huge problem over the next decade.
Clearly three key things need major correction:
- Wages need to go higher
- Housing costs need to go down
- Health insurance costs need to go down significantly
Once again, it is prudent to focus on investments that we consider basic necessities because all things considered, shelter, health care and energy/food will triumph over all other expenses. When people become poorer over the next decade they will need to focus on core goods and services. To answer our own question: What will cause the next economic crash? Simple accumulated inflation.
Plan accordingly.
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