How the Skyrocketing Inflation is Affecting Nebraska Housing Cost

In last nine months Americans have been facing a growing menace that has been kind of tame since the 1970’s:  skyrocketing inflation.  According to the Bureau of Labor Statistics the so called Consumer Price Index, which is the government speak for increasing prices on, well, everything, has been growing at more than 9% per year since March of 2021.

Figure 1:  Monthly Inflation Rate (CPI-U) from January 2012 to June 2022

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When inflation is low or, even better, zero percent, this means all prices—food, gas, housing, etc.—stay the same.  When inflation climbs at such a breakneck speed—and 9.1% per year is a very high speed—everyone becomes poorer.  Why is that?  Well, if you annual income grows only at 1-3% per year, like it did for most Americans over the last 30 years, while food, energy, and housing prices start growing at 10-20% per year, Americans can afford to buy less and less of, well, everything, every year.  And that’s the definition of becoming poorer.

Housing Affordability in Nebraska

Let’s look at how much the housing cost has changed in Nebraska over the last few years.  Can Nebraskans now afford to buy more or less in terms home, home heating, and home electricity?

Let’s start with the housing prices first.

Did you know that over the last ten years, since 2012, the house prices in Nebraska have gone up by 71%?  So, if in January of 2012 you wanted to buy house for, say, $100,000 in January of 2022 exact same house would set you back by $171,000.  Well, that’s a good news if you the one who owned this house over the last ten years and now selling it.  It is less of a good news if you are the one buying it.

And something odd has been happening with house prices in exactly the same period when the overall US inflation went from the 10-year average of 1.6% to the current nose-bleeding 9.1%.  Around the same time the annual house price increases in Nebraska went from the “typical” 4-6% to 11-16% making housing less and less affordable for majority of Nebraskans.

Figure 2:  Quarterly House Price Increases in Nebraska January 2012 to January 2022

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A critically thinking person would ask, so, what happened to the average Nebraskan family income in the meantime?  Did the incomes grow as much as (or hopefully, even faster than) the housing prices?  Because if incomes do grow faster than prices, families become wealthier.  And the opposite is true, if incomes grow slower than prices, all Nebraskan families become poorer and poorer every year.

According to the US Census the median household income in 2012 in Nebraska was $52,196.  By 2021 the median income has grown to $72,024.  That’s a 38% increase in about ten years.  But as we have seen above, during the same time period the housing prices have gone up by more than 70%.

So, if an average Nebraskan family wanted to buy a house for $100,000 in 2012 it would need to work for a bit less than 2 years to earn $100,000 to buy this house.
What about 2022?  Well, since the same house price went up 71% to $171,000 and the family income went up to $72,024 to be able to buy the same house this same family would now need to work for 2.5 years to earn $171,000.  So, based on just the housing price alone the median Nebraskan family became poorer by about 20% just in the last ten years.

Energy Affordability in Nebraska

Well, when you own or rent a home you also need to buy electricity and heating and cooling to live in it.  Let’s see if the electric power and the cost of heating and cooling in Nebraska has become more or less affordable in the last few years.

According to this State-by-State data (see Table 3) the average electricity consumption in Nebraska is about 0.59 kWh per square foot.  With the average home size in the state of about 2,000 square foot, this means a family consumes about 1,200 kWh in electric power each and every month.

Electric power cost for residential customers in Nebraska in 2012 was 10 cents per kWh.  By 2022 the average electric power prices increased to 11.11 cents per kWh.  This means that the average monthly electric bill for a family with a 2,000 home increased on average from $118 per month in 2012 to $131 per month in 2022.

The good news is that is only an 11% increase in ten years, which is significantly lower than either the average US inflation or the average housing cost during the same period.  And it is three times lower than the median Nebraskan family income growth as well.

Of course, electricity is not the only type of energy Nebraskans use for their homes.  On average half (or 48% to be exact) of all homes in the US use natural gas to heat their homes and less than 40% use electricity to heat their homes.

So, what happened to the price of natural gas in the last ten years?

According to the US government statistics the annual average price of natural gas, delivered to residential customers in Nebraska, in 2012 was about $10.90 per 1,000 cubic feet.  In 2021, the last full year of data, the price on average was $13.70.  This equates to a 26% increase over the period of nine years.

The good news is this increase is still less than the housing prices growth and even less than the median Nebraskan family income growth.  The bad news, of course, any price inflation, even as low as 26%, still eats into the families financial well being and life affordability.

If we add up these monthly energy costs we get the following picture (for a 2,000 square foot home):

• Electricity:  $131/mo (up from $118/mo compared to 2012)
• Natural gas:  $610/mo (up from $485/mo compared to 2012)

Summary

In summary, when we look at what happened to the overall Housing Cost affordability in Nebraska over the last ten years we can conclude that:

• Home prices increased by 71%
• Electricity cost went up by 11%, and
• Natural gas cost went up by 26%

In the meantime the median Nebraskan family income increased by 38%, more than energy cost, but a lot less than the average house prices.
Coupled with gasoline and food prices all going up by double-digits and family incomes stagnating or increasing at 1-3% per year at best, families are going to be struggling more and more if the current inflation rates are not reduced down to 1-2% levels they were in the past.