worker's incomes have not increased as it relates to buying power in decades.
Houses are more, yes, but are bigger. When you look at them per square foot, they've trended with inflation, as have wages. So they don't cost more, except in certain highly desirable areas. They're cheaper in others (rust belt, for example).
We're talking about average citizens though, who think they deserve that "bigger" house in the nice school district, and will leverage themselves to the hilt to get 2 "expensive" cars to park in the driveway of their new house. There's a reason the homes in the rust belt were abandoned, much like homes in Detroit got abandoned - Nobody wanted to live in those areas because they were run down, crime ridden, with no jobs, and depreciating home values. In contrast, I wonder what will happen when tens or hundreds of thousands of $600k - million dollar homes come on the market in a 10-20 year period when boomers die? I don't think that the kids or heirs are just going to let properties like that sit empty.
What I'm also talking about is the "Two-Income Trap". Here is an excerpt from a story in the New Yorker talking about Elizabeth Warren's book. What's happened is, more and more families started having two incomes, which drove up the price of goods and services because of supply and demand. So, now it takes 2 incomes to match the buying power of what 1 income used to before ~1970 or so.
http://www.newyorker.com/magazine/2014/04/21/the-warren-brief"Warren believes that the two-income family has contributed to the bankruptcy rate. “For middle-class families, the most important part of the safety net for generations has been the stay-at-home mother,” Warren and her daughter, Amelia Warren Tyagi, wrote in “The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke” (2003), a book aimed at a wider audience than Warren’s earlier, academic work. (“Mom, you are boring,” Tyagi told Warren. “Collaborating with my daughter is not for sissies,” Warren says.) It used to be that when a middle-class family was faced with a financial crisis the woman in the house could get a job, to tide things over, which is what happened when Warren’s father had a heart attack and her mother got a job at Sears. This cushion doesn’t exist in the two-income family, which, in its short history—it has its origins, as a middle-class phenomenon, in the nineteen-seventies—has also taken on a great deal more housing debt. The 1974 Equal Credit Opportunity Act required lenders to count a wife’s income when evaluating borrowers; the deregulation of the mortgage lending industry began in 1980. With two wage earners and low down payments, middle-class families took on bigger mortgages and contributed to an increase in the cost of housing, especially when families with children paid a premium for property in school districts with high test scores. Financial crisis, for a two-income family, usually means having to live, quite suddenly, on one income. In these straits, families with children tend to totter on the edge of ruin. “Having a child is now the single best predictor that a woman will end up in financial collapse,” Warren and Tyagi reported. Between 1981 and 2001, the number of women filing for bankruptcy rose more than six hundred per cent."