Jun 11, 2024
Personal finance celebrity Dave Ramsey doesn’t believe the economic hardships faced by younger Americans today are anything special — or even particularly unique — compared to previous generations.
In an episode of Theo Von’s podcast, This Past Weekend, the 63-year-old real estate investor and host of The Ramsey Show talked about how he believes the American Dream is still alive and well — for those willing to work for it.
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Specifically, Ramsey focused on housing affordability, talking about how Gen Z and millennials complain about feeling “hopeless” because “housing is so expensive,” before adding, “honey, it's always been expensive!”
But is he right?
Has housing has always been unattainable?
During his interview with Von, Ramsey described how homeownership has always been beyond the reach of many Americans. “If you serve coffee and you’re a dancer in Nashville, those are not career fields that you’re going to make enough to be able to afford a house,” he said. “That’s been true in every generation.”
Based on data from the University of Missouri, the average national minimum wage was $3.10 per hour in 1980, which means a barista working 35 hours a week earned roughly $5,642 a year.
Meanwhile, homes had a median value of $47,200 in 1980, which is more than eight times the annual income of that barista.
Arguably, there’s some truth to Ramsey’s theory that housing has always been unaffordable for those earning minimum wage and in lower-paying jobs. However, he may have overlooked the fact that housing affordability has changed for middle-income families in recent decades.
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Find the best rate for youMiddle-class housing affordability
According to data from the United States Census Bureau, the median family income in America was $21,020 in 1980.
That means the median home was just 2.24 times greater than the income earned by a middle-class family at that time.
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This ratio has changed dramatically since then. In 2022, the median family income was $74,580, while the median home price was $525,000, according to data published by the Federal Reserve Bank of St. Louis. That’s a price-to-income ratio of seven.
In other words, housing is nearly as unattainable for a middle-class family today as it was for a minimum wage earner back in 1980.
Housing affordability has deteriorated even when adjusted for interest rates. According to the National Association of Realtors, the housing affordability index sits at 101.1 as of March 2024.
A reading of 100 on this index indicates that a middle-income family earns just enough money to afford a median home on a 30-year fixed mortgage. This index was 208.1 in February 2012, which is when home prices and interest rates were low enough to make most homes affordable.
The fact that housing is now beyond the reach of middle-class Americans is one of the many reasons why people believe the American Dream is dead.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
