Wages and Home prices Study on acquisition power of individual income

Index  Introduction to hypothesis Introduction to hypothesis  Definitions Definitions  Data Explained Data Explained  Example  Conclusions Conclusions

Introduction to Hypothesis During the past 80 years the acquisitive power of individuals has significantly fallen in relation to home prices. Key moments throughout the 20 th and beginning of the 21 st century have given way to these higher prices without significant rise in wages which has lowered how much each individual can purchase.

Definitions  Acquisitive Power- The power which an individuals’ real wage has to purchase goods and services  Real wage- Real wage is defined by the wage of an individual divided by the general level of prices (W÷P)  CPI- Consumer Price Index (also known as CPI) is the cost of a basket of goods compared to the prices in a base year. It allows us to determine inflation. Mathematically defined as so: (Unit 1 P * Unit 1 Q)+ (Unit 2 P * Unit 2 Q)... +(Unit X P * Unit X Q)  Inflation- It is the change in general level of prices over a certain period. Calculated as so: CPI X – CPI by CPI by  Base Year- Year from which prices are used as a standard to measure rising level of prices.

Over the past 80 years we see a steady rise in home prices.

Average wages have also increased substantially over the past 80 years

However, the percentage of wage to home cost has decreased.

Inflation clalculated with given values has increased exhoribitant amounts.

Conclusions  Home prices have risen substantially over the years and wages have not. Starting in 1930, average wage workers were able to purchase 50% of their home cost with their wage, whereas in 2008, average wage workers can only purchase 17% of their homes total cost.  It is not a good measurement of inflation given that is it only one good. However, it gives perspective as to the purchasing power of average wage in regards to one coveted good.  The rising average home prices are given due to key moments throughout history such as the great depression in the 1930’s, the market crash of 1970’s and the real estate bubble of 2008.