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# 30 years later...

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1984 Italy => 73,500,000 / 750,000 = 98.0

2021 Italy => 200,000 / 950 = 210.5

The federal minium wage in the US is \$7.25 per hour.

Assuming a 40hr work week, that's \$290 per week or \$15,080 per year.

That puts you in the 12% Tax Bracket so net income would be \$13,270 per year or \$1106 per month.

It's more about Debt-to-Income ratio and not monthly income here in the US.

The highest debt-to-income ratio that qualifies for a mortgage is 29% and that is what we call an FHA Mortgage (Federal Housing Authority) [most mortgage lenders use 28% but 29% is available].

Different formulas apply to Veterans but the percentages are not that far off, Veterans are allowed to add total debt differently but house+debt is still limited to 41% in total debt and FHA is also 41% total debt.

The 29% is part of that 41% total debt.

Not to confuse, but it is that 29% mortgage debt to income ratio that determines if you even qualify for a mortgage.

So if you only make \$15,080 per year, you only qualify for a mortgage where the payments add up to \$15,080 * 29% = \$4,373 per year, or \$364 per month.

Using the default 4.04% interest rate for a 30yr and no down payment, that equates to a \$75,800 home price (I used this calculator - https://wallethub.com/mortgage-calculator/ )

So for an apples-to-apples, the 2021 US Jaclaz Ratio (home price / monthly net income) => 75,800 / 1106 = 68.5 (this would be the highest valued house that you can qualify for as far as getting a mortgage).

So that still kinda tells me that the US is better off than Italy.

But I don't remember if that was the question we were trying to answer, lol.

But you can easily buy a house here in the US for less than that.

If you wanted to buy one for \$60,000 that would put the 2021 US Jaclaz Ratio at 54.2.

So the "worst case scenario" as far as that ratio is to buy the biggest house possible that our mortgage laws would even qualify you for a mortgage - and that gives me 68.5.

I'm still curious of doing a 1984 US Jaclaz Ratio (just to give it a name), I'll have to dig that data up later.

Edited by ArcticFoxie
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Minimum wage in 1984 was \$3.35/hr.

Again assuming a 40hr work week, that's \$134 per week or \$6,968 per year.

Having to "qualify" for a mortgage started here in the US in 2010 (subprime crisis was 2007-2010) under the Dodd-Frank financial reform legislation.

While "qualifying" for mortgages is relatively new here in the US per Federal Laws, it's been around since at least 1970 based on this  --  https://www.huduser.gov/portal/publications/pdf/Trends_hsg_costs_85-2005.pdf

What is now Federally mandated as far as qualifying for a mortgage (28-29% mortgage-debt to income ratio), in the '80s that apparently ranged anywhere from 25% to 42% but 30% was the "standard".

But I'm also showing that the "standard 30%" in 1984 also included utility payments, property taxes, and PMI (insurance).

So 1984 versus 2021 here in the US is actually pretty much identical - you could only get a mortgage that would cost you roughly 30% of your total net income.

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Yes, the 28% or 29% (or the previous 30% standard) is approximately the same number as the complement for my 2/3 to 3/4 needed for living, that leaves 25% to 33% of income to pay for the mortgage.

The issue with house prices you used is that they are "reverse engineered" from the affordable mortgage, that will be fine in (say) West Virginia, where the bottom tier house is 52,000 \$ (and minimum wage is higher at 8.75 \$/hour) but it will change dramatically in (still say) Virginia where the bottom tier house is 165,000 \$ (and minimum wage - from May 2021 - is only slightly higher at 9,50 \$/hour).

These two adjoining states data show how buying a house with minimum wage in one it is possible, and in the other it is not.

Same goes for two states that have the same 7.25 \$ minimum wage, Alabama and Georgia , in the first bottom tier is 68,000 (meaning possible), in the second it is 117,000 (meaning not possible).

For the record, there never was a question, there was a statement that revolved around the fact that (in Italy) the ratio houses/minimum wage is in 2021 roughly double the one in 1984, and that this can only be due to two things:

1)  the minimum wage raising failed to follow properly inflation
OR
2) the house prices have increased much more than inflation

(or the combined effect of both)

I.e. what is relevant is the ratio_2021/ratio_1984, in  a perfect world that should be around 1 while it is - at least for Italy - more like 2.

jaclaz

Edited by jaclaz
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2 hours ago, jaclaz said:

I.e. what is relevant is the ratio_2021/ratio_1984, in  a perfect world that should be around 1 while it is - at least for Italy - more like 2.

Agreed.

Where are you finding first bottom tier prices?

I'm not well-traveled nowadays, but I've been to 26 of the 48-contiguous States.

I'm finding it difficult to fathom on how West Virginia and Virginia would be so drastically different - unless you're in the Washington, D.C. area of Virginia.

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11 hours ago, ArcticFoxie said:

I'm finding it difficult to fathom on how West Virginia and Virginia would be so drastically different - unless you're in the Washington, D.C. area of Virginia.

The already posted one (no idea if reliable/accurate):

Quote

Average home value in West Virginia: \$107,064

Median top-tier home value in 2020: \$199,651

Median single-family house value in 2020: \$106,840

Median bottom-tier home value in 2020: \$52,166

Median condo value in 2020: \$126,199

vs:

Quote

Average home value in Virginia: \$293,818

Median top-tier home value in 2020: \$547,212

Median single-family house value in 2020: \$295,926

Median bottom-tier home value in 2020: \$165,069

Median condo value in 2020: \$278,124

Of course, since these are median values, the Washington D.C. area may well account for the difference.

jaclaz

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Oh yeah, I guarantee it that it's that "median value" that is WAY OFF !!!

Here in the States, no matter what State, there is ALWAYS a "poverty district" where the "bottom tier folks" CAN ALWAYS find a house for "pennies to the dollar".

You can always spot these "districts" because the house will be run-down and look like it should be condemned as unlivable, but the vehicle parked in the driveway will be brand new, spit-shined, and worth twice the value of the house.

You'd think I'd be exaggerating - but I'm not

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Quote

nothing-fancy, small flat in an average city, in an average building, suitable for one or two people for a US City.

is not the same as  "looks like it should be condemned as unlivable"  or "in a poverty district".

33 minutes ago, ArcticFoxie said:

You'd think I'd be exaggerating - but I'm not

.No, I am pretty sure that what you describe happens alright, many years ago I was involved in the construction of some 96 flats for "social housing" in Geneva (in Italy each city council has - or should have - a branch that builds or buys houses to rent them to people with very low level income, and the rent for these houses is very, very low, usually something like 20% to 25% market price) and I made in the following years (after the completion of the actual construction) a few inspections (to solve minor problems that could have been covered by the builder's warranties) and was amazed by two things:

1) the amount of BMW's and Mercedes parked in the condo parkings
2) the sheer "luxury" of the furniture inside some apartments

jaclaz

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1 hour ago, jaclaz said:

nothing-fancy, small flat in an average city, in an average building, suitable for one or two people for a US City.

is not the same as  "looks like it should be condemned as unlivable"  or "in a poverty district".

Good point!

But the "average city" then HAS TO rule out some US cities.

In the world of statistics, we have bell-shaped curves.

Virginia is not an "average city" and is part of that bell-shaped curve "extremes" - and West Virginia is also an "extreme", to the opposite side of that bell-shaped curve.

West Virginia's poverty rate was 16.0% in 2019.

Virginia's poverty rate was 9.9% in 2019.

We have States here in the US that find their own way to send the poverty OUT of their State and into other States.

Legal or not, it happens.

Best States with fewest in poverty  --  New Hampshire, Utah, Maryland, Minnesota, New Jersey, Colorado, Hawaii, Massachusetts, Washington, Virginia, Nebraska, Connecticut  --  all 10.0% or below

Worst States with highest in poverty  --  Oklahoma, Alabama, West Virginia, Arkansas, Kentucky, New Mexico, Louisiana, Mississippi (, Puerto Rico, American Samoa)  --  all 15.0% or higher

Edited by ArcticFoxie
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Sure, and not so casually I previously proposed (tentatively) a couple of cities in states that are around the middle of the rating by price:

On 6/24/2021 at 10:02 AM, jaclaz said:

Then the location, even as we have some rather wide differences by region or city, it is rare to find the same wide differences you have among different states and cities in the US, my single datapoint is about a city which is more expensive than many but not among the most expensive ones, to "port" it to the US, that would possibly be (say) Phoenix, Az or Baltimore, Md:

32 minutes ago, ArcticFoxie said:

West Virginia's poverty rate was 16.0% in 2019.

Virginia's poverty rate was 9.9% in 2019.

Sure, that is clearly confirmed by:

Quote

West Virginia:
> Estimated hamburgers eaten per capita annually: 171 (the lowest)
> Estimated hot dogs eaten per capita annually: 481 (the highest)

Virginia:

> Estimated hamburgers eaten per capita annually: 197 (14th lowest)
> Estimated hot dogs eaten per capita annually: 236 (18th highest)

We can use the formula 481/236/(197/171)=1,77 to obtain a good enough approximation of 16/9.9=1,61.

And, at the light of this, we can introduce a HPCF (House Price Correction Factor) of 2  and the West Virginia vs. Virginia bottom tier makes sense as

\$52,166*1.61*2=167,947 \$ which is a very good approximation of the \$165,069

jaclaz

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TOTALLY COOL !!!...

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