So since 1988, houses seem to have risen from about 1.3 times your annual salary to at least 5 times your annual salary.

This is a big deal, so it's worth considering the causes.
In reverse order of my perception of significance:

* Big cities get more expensive, and smaller places not so much. Most people live in big cities, so that dominates the statistical effect. I imagine the price of a house in Podunk hasn't exploded upwards.
* Even in some "off peak" big cities, it's not exactly egregious: real house prices since 1987 are up 2.1%/year in Cleveland. Median real US household income is up not much less, despite the falling number of people per household.
* Zoning restrictions, in particular single family dwelling monoculture, but more generally all the Nimby-like restrictions on building anywhere near where people want to live.
* US government policy to drive housing demand, primarily through interest subsidies and running the mortgage market. The US has the most socialist housing finance system of any developed country.

Jim

Berkshire Hathaway FAQ

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