A closer look at the cost of living between 2000 and 2015: Looking at tuition at USC and the typical priced US home.

 

We keep hearing that the Fed is tepid about raising interest rates because there is no sign of inflation.  In fact, they assume that wages are keeping up for most families and that is not true.  Inflation is running rampant.  You don’t need giant price increases to disrupt lifestyles when many of the new jobs are being added in the low wage service sector.  Numbers mean little without actual case examples.  So today we are going to look at tuition at a big private university and the cost of buying a home.  These are big ticket items and many people need a college degree to even have a remote chance of not falling into the low wage hamster wheel.  But choosing a school and managing costs is like navigating through a landmine field.  This is why total outstanding college debt is now at $1.36 trillion and growing.  While nominal wages have gone up since 2000 all of the gains have been stripped by the rising cost of items.  People try to keep up by going into debt to finance these purchases.  This is why inflation is a slow dollar killer.  Let us look at this in practice.

USC tuition since 2000

College tuition has increased for virtually every school across the nation.  We know this but how does this look when we parse out 15 years of data?  Let us take a look at the University of Southern California, a large private school in California.

First, it might be useful at looking at the last 10 years charted out:

The trend is rather clear.  Let us go even further back:

Back in 2000 tuition was set at $22,636.  The latest fees place tuition at $49,464 per year:

*Assume 2 semesters per academic year

Over the last 15 years tuition has gone up 118 percent at USC.  Keep in mind this is merely for tuition and doesn’t include room and board.  And with rents skyrocketing, this means the total cost to attend is higher than the US median household income per year.  This is one reason why student debt is simply getting out of control.

USC is simply one example of the trend in higher education.  Easy access to debt allows colleges to increase costs easily since students don’t face any direct cash outlay while in school.  This works fine if costs are moderate.  But the cost of attending USC for one year is now more expensive than what your typical US household makes for an entire year, pre-tax!

Housing

We’ve lived through the biggest US housing bubble in our nation’s history.  It busted in spectacular fashion but prices have soared yet again.  Let us look at prices here:

The typical home that sold in the US in 2000 went for $137,400. The latest data point shows that existing homes are selling for $234,000.  This is a 70 percent increase in home prices over the last 15 years.  Again, we are looking at nominal figures here.  The Fed uses the CPI as their backup reference for all policy measures and the CPI uses the owners’ equivalent of rent which is a very poor measure of home price changes since most Americans own (although more are renting because they can’t afford to buy).

So how has household income done over this time?

Household income went from $40,804 to $55,132, an increase of 35 percent.  And this here is the reason why people are falling further and further behind.  And this is a consequence of the Fed’s banking policies allowing easy access to debt to simply inflate underlying assets and services like housing and college tuition.  Think about it – the typical household income went up by $14,328 yet the typical house jumped up in price by $96,660.  And you wonder why people are having a hard time saving for retirement.  Inflation is real people.

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