I always wondered why houses could grow faster than either CPI or wages for long periods of time.
Think about an average wage earner....
Assume they took home $500pw back in 1980 and thier living expenses were exactly $500pw.... that leaves $0 for disposable income... they are barely subsisting.
Then assume that inflation has averaged 3% since then and wages have grown at 4%.
So in 1981 that $500pw of wages have grown by 4% to $520, but CPI has increased their living expenses by only 3%, so their grocery/rent bill is $515. They have $5 left over, doesn't sound like much but, it's infinitely more than the $0 they had last year.
Then in 1982 same happens, wages grow a little faster than the outgoings, so they have a little over $10 to spend on doodads. That disposable income is DOUBLE what they had last year.
Anyway after 20 yrs of this, the increase in disposable income tends towards 7-8% as can be seen with the figures below.
Code:
Year Expenses Wages Disposable Disposable increase
1980 $500 $500 $0.00
1981 $515 $520 $5.00 Infinity
1982 $530 $541 $10.35 107.00%
1983 $546 $562 $16.07 55.25%
1984 $563 $585 $22.17 38.00%
1985 $580 $608 $28.69 29.38%
1986 $597 $633 $35.63 24.20%
1987 $615 $658 $43.03 20.75%
1988 $633 $684 $50.90 18.29%
1989 $652 $712 $59.27 16.44%
1990 $672 $740 $68.16 15.01%
1991 $692 $770 $77.61 13.86%
1992 $713 $801 $87.64 12.92%
1993 $734 $833 $98.27 12.13%
1994 $756 $866 $109.54 11.47%
1995 $779 $900 $121.49 10.90%
1996 $802 $936 $134.14 10.41%
1997 $826 $974 $147.53 9.98%
1998 $851 $1,013 $161.69 9.60%
1999 $877 $1,053 $176.67 9.26%
2000 $903 $1,096 $192.51 8.96%
2001 $930 $1,139 $209.24 8.69%
2002 $958 $1,185 $226.91 8.45%
2003 $987 $1,232 $245.56 8.22%
2004 $1,016 $1,282 $265.26 8.02%
2005 $1,047 $1,333 $286.03 7.83%
2006 $1,078 $1,386 $307.94 7.66%
2007 $1,111 $1,442 $331.04 7.50%
2008 $1,144 $1,499 $355.39 7.36%
And we all know what most people spend disposable income on.... stuff that makes them happy - like plasmas, cars and of course houses that are slightly better than the Jones.