Home(r) Economics

Is it harder to buy a home today than in the past? Many seem to think so. Lately, some people have used the example of the fictional Simpsons family to make this claim. A recent Tweet with around 100,000 likes expressed the sentiment:

The unspoken implication is that today a “single salary from a husband who didn’t go to college” couldn’t buy a typical home in the US. Or at least, it would stretch your budget so thin that you would have to give up something else or need two incomes to support that lifestyle (famously dubbed “the two-income trap” by Elizabeth Warren).

And it’s not just a Tweet that caught fire. A December 2020 article in the Atlantic claimed “The Life in The Simpsons Is No Longer Attainable” and used housing as a prime example. And while a 2016 Vox article on Homer’s many jobs doesn’t mention the cost of housing, they draw a similar conclusion and implication: “Homer Simpson has gone nowhere in the past 27 years — and the same could be said of actual middle-class Americans.”

But is this an accurate picture of the Simpsons family over time? And does that picture accurately represent a typical family in the US? Let’s investigate. And let’s start by pointing out that as measured by the availability of consumption goods, the Simpsons do see rising prosperity over time. They have flat screen TVs now, instead of consoles with rabbit ears, as the late Steve Horwitz and Stewart Dompe point out in their contribution to the edited volume Homer Economicus. But with all due respect to my friends Steve and Stewart, I don’t think many would deny that TVs, cell phones, and computers are cheaper today than in the 1990s. The familiar refrain is “but what about housing, education, and health care?”

In this post I want to take on the question of housing, partially by using the Simpsons as an example. My main result is this chart, which I will present first and then explain.

My “Homer’s Home” curve shows how much of Homer’s annual salary it would take to make the mortgage payment on the median new home sold in the US. My calculation takes into account the interest rate on a 30-year mortgage and assumes a 20% down payment (before you object, read on). It does not include insurance or taxes (let’s assume these are roughly constant over time, so would shift the level but the trend of the line).

The crucial piece of data though is Homer’s income. Where does this come from? Many analyses of this the Simpsons, including the Atlantic and Vox articles mentioned above, use a paystub we see of Homer’s in a May 1996 episode. It reveals Homer makes about $24,000 per year (if you assume he works about 50 weeks per year). Many people then make a fundamental mistake of merely adjusting that income for inflation and say that Homer makes about $42,000 in today’s dollars (for example, in the Atlantic). But this assumes what you are trying to prove, that wages have stagnated! Even using the EPI wage data, often the source of wage stagnation stories, we see that median wages have grown 26% faster than inflation since 1996. Inflation adjustments are the source of so much confusion!

Here’s what I do instead: in 1996, Homer was earning about 84.5% of the median family income for single-earner families. I simply assume that Homer is always roughly at this level: his income grows with the normal growth rate for single-earner families. Perhaps this is a problem because Homer only has a GED in the early years, so maybe he’s falling behind over time. I’ll address that below.

What does this chart show? It shows that quite clearly the Simpsons are not being squeezed by housing prices. To the contrary, housing prices are much higher (probably unaffordable at over 50%!) for the family in the late 1980s/early 1990s, but they become cheaper over time. Part of what’s doing the work here is falling interest rates, but that’s a real thing during this time period, and their income does also grow over time.

Housing costs, the largest component of a typical household’s budget, are not squeezing this family. In fact, it’s not until the most recent decade that they get into the 30% of income territory, a typical rule-of-thumb for housing costs. I suspect the trend is the exact opposite of what most would have guessed!

Potential Objections Answered

Down payment

Is it realistic to assume they could make a 20% down payment? Maybe, maybe not, but if it’s unrealistic now then it’s unrealistic in the early 1990s. In the early 1990s, it would have taken about 1.1 years of Homer’s annual income to pay for a 20% down payment on the median new home. Today, it’s more like 1.3 years of income. That’s more, to be sure, but not ridiculously more.

It’s also true that many people are lucky enough to have their parents help with a down payment (and others, of course, aren’t so lucky). The Atlantic writer originally mentioned this as being much more necessary today, but then had to make a correction: the Simpsons actually got help from Homer’s dad too! Yes, parents help, but parents helped the Simpsons in their early years too.

High school degree

First, let’s be clear: Homer does have a college degree! Or at least he did get one in the 1993 season, before we see his 1996 paycheck. Still, it’s a common objection: a single male without a college degree used to be enough!

While I can’t slice the family income data by education status and still keep a single earner, we can use another Census data source: median personal income. I can recreate the chart using median personal income for a full-time male worker with only a high school degree.

While the downward trend isn’t quite as steep in this second chart, which now has nothing to do with the fictional Simpsons data, there is clearly no squeezing of the household budget over time. And for the past decade, we are floating right around 30% of income devoted to housing. Keep in mind this is a single person’s income with a high school degree, no tricks here! The amount spent as a percent of household income is almost exactly equal in 1996 and 2019.

You could say, of course, well this is stagnation! It hasn’t obviously improved over time! But the usual stagnation story is: yes, TVs and flatter and cheaper, but housing prices are going up, and going up so much that they offset the cheaper TVs. And remember, land is basically fixed in supply, so if anything should get more expensive over time, this is the main thing that should. And yes yes! We could be doing much more to make housing cheaper, as I have wrote about in a previous blog post. Still, I think this result is striking.

Finally, while college grads are an increasing share of the labor force, they are still only about 43% of the workforce (using the latest BLS employment situation report). That means they median US worker today doesn’t have a college degree. So the median overall income is not a bad place to start.

Geographic variation

Housing prices vary dramatically across geography in the US. Everyone knows this, even if they know nothing else about urban economics. Some areas and cities have higher prices, and importantly some areas and cities have seen greater prices increases in recent years. Using the median home price for the entire nation might not be perfect.

But where do the Simpsons live? Part of the joke about “Springfield” is that it could really be just about anywhere in the US. But all indication is that it is at least inspired by Springfield, Oregon, according to the show’s creator. What can we say about housing prices in Springfield, Oregon?

Springfield is part of the Eugene, Oregon MSA, and thankfully I could locate some data on housing prices over time in that MSA. It’s a good MSA to pick, because Eugene has seen housing prices rise faster than the US as a whole since 1996. Not a whole lot faster, certainly not like a San Francisco or New York, but fast enough where we are using an MSA that has had some aspect of a “hot housing market,” especially in recent years.

Here’s the best data I can find: in 1996, the median existing single-family home sold in Eugene sold for $116,200. The mortgage payment on that would have taken about 34.1% of Homer’s income. In 2020, the same figure is $370,400 for Eugene, a lot more than 1996, but the mortgage payment is now only about 30.6% of Homer’s income. Less than 1996! Housing prices have continued to rise in 2021, but we don’t have the comparable income data yet, and hey, 2021 is a weird year for housing. But we can reassess when we have complete data.

So even in Eugene-Springfield, Oregon, the Simpsons aren’t falling behind!

Counter objection: the Simpsons are always in financial trouble!

To all of these objections, let me add one of my own: the Simpsons are not an example of a family with no financial difficulties! Money problems are a recurring theme throughout the series, though of course these problems are usually resolved (with hilarious consequences). In fact, one 1995 episode revolves around the fact that Homer missed a mortgage payment, and he only got out of the situation by getting a loan from his hated sisters-in-law and becoming their servant. It all works out in the end for Homer, but once again, the Simpsons have money problems, even in the early 1990s. Them easily owning a home on just Homer’s salary is absolutely not what viewers should take away from the show.

Finally: Houses are bigger and better!

Using the median new home sold is making the hard case. Not everyone buys a new home. And if you do buy a new home, it is better than the new house of the early 1990s in almost every way. For single-family detached homes, here’s just a few stats:

  • They are bigger: from under 2,000 square feet in the 1990s, to 2,400-2,600 square feet in recent years
  • More bedrooms: the Simpsons have at least 4 bedrooms, but 39% of new detached homes did in 1996. In 2020, 57% had 4 or more bedrooms.
  • More comfortable: in 1996, just 83% of new homes had air conditioning. In 2020, it was 96%.

These are just a few of the improvements. And we’re not going back to the 1950s here: these improvements are just since the 1990s! I didn’t make any adjustments for these in my charts because, well, some may accuse me of cheating. And a real objection is that you have to buy what houses are available: if houses are bigger, you have to buy a big house even if you’d prefer a smaller one. So, I didn’t size-adjust the houses. Doing so would have made recent years look even better

Conclusion: The Simpsons are Fictional, but Real Income Growth is Not

The Simpsons are a fictional family. Should we care what they represent? Maybe! A lot of people seem to think so. See the articles I referenced above. Or see this long Reddit thread on the topic. Clearly, the “single income family can’t buy a home anymore, as represented by the Simpsons” line has struck a chord. And it just feels right to so many: sure, flat screen TVs are cheap. But try buying a house to put one in!

However, using the best data I can find to accurately represent the Simpsons’ housing budget situation does not show stagnation. It shows progress, or at the very least stasis. But what about health care? Education? I’m already at almost 2,000 words here, so I’ll save those for another day. I’ve also got a post on the Simpsons tax situation in the works. So, stay tuned, but remember: housing is the biggest budget item for most households. It’s 1/3 of the CPI-U weight. It’s the go-to example of how it’s “hard to get by these days.”

No doubt it’s true in some place. But at least for the median home in the US, or the median home in Springfield, there does not appear to be a budget squeeze going on.

Finally: don’t just adjust things for inflation when you don’t need to. If you are interested in whether a particular good has got more affordable over time, just compare it to the income measure you want for each year. It’s much easier, and much more realistic.

5 thoughts on “Home(r) Economics

  1. James Bailey February 23, 2022 / 8:02 am

    Forgot Homer had a college degree

    Like

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