In our last piece about inflation, we looked at how inflation eats away at the value of investments (and investment returns) over the years. Typically, inflation is measured as a price level, so that year-over-year or month-over-month changes are easier to understand.
But another way to look at inflation is to bring wages into the equation and ask, “How long do I need to work to buy that?”
As an example, imagine a person earning $15 an hour who wants to buy a dozen eggs that cost $3. Ignoring taxes or any other deductions, it would take that person 1/5th of an hour or 12 minutes to earn enough money to buy those eggs. Now, imagine the price of eggs rises. Perhaps there is a supply chain issue, maybe gas prices have jumped, maybe the hens went on strike. In any case, those same eggs now cost $5. It now takes our hungry person 20 minutes of work to buy those same eggs; he or she needs to work more to be able to afford the same thing.
Fortunately, wages tend to rise over time, offsetting some of the effects of inflation. But is it enough? Short answer, usually not; and especially not over the last several years. The biggest expense most people have in their lifetime is their home. If we do the same calculation for home values as we did for eggs (this time using real data) we can calculate the number of hours an ‘average’ person needs to work to buy an ‘average’ home.
The most recent data we have (June 2022) says that the median sale price of a home in the United States was $440,300. Average hourly earnings for all private employees was $32.08. That means it takes 16,118 hours (ignoring taxes and any other expenses) for the average person to buy an average home.
By itself that number doesn’t mean much. But if we look at it over time, a clear trend emerges.

Prices of homes relative to people’s ability to afford them has never been higher in this millennium. Not during the Dot.com runup, nor even during the housing bubble of 2003-2007. More recently, since the COVID-19 lows when it only took ~13,000 hours to afford a house, even adjusting for wage increases, home prices are now 23% more expensive.
While this is not good news for first time homebuyers (and is probably not a sustainable trend in the long run) there is a silver lining for some. If you already own your own home, the increase in its value is likely outstripping gains in your income, or even your investments.
Utilizing wealth generated by rising home prices may be a valuable component of your overall financial plan. If you are interested in learning more about the choices that are available to you to tap into this growth, consider talking to a financial planner. There are many choices out there and no single choice is appropriate for everyone.
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Sincerely,
Mark and Dave