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Existing home prices and median income
Wednesday, January 21, 2009
Data for existing home prices was generously provided by CM earlier today, so a new graphic to add to the discussion that began on Monday (see here and here) seemed appropriate.
Note that the all-important 2008 home price data was estimated based on the most recent data from the National Association of Realtors - it is shown as a 13 percent decline from the average 2007 level (about $187,000) rather than $181,000 as reported in November.
An update now appears below...
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UPDATE: Wednesday, Jan. 21st 12:20 PM
Here's the price-to-income ratio along with mortgage rates:
It appears that the pre-1990 and post-1990 relationships are quite different.
7 comments:
If this data is correct, the price to income ratio is certainly not a constant - it's been rising steadily for many years and now seems to be back at the trendline. The bigger question is whether we are undergoing a major change in the trendline due the bursting of a 30 year credit bubble.
- Gene W.
I think if you add a line to also track typical mortgage rates you will see that the "ratio" goes up when mortgage rates go down and vice versa.
My thesis is that both income and rates need to be factored as the average uninformed lemming only considers how big a payment they can make. IMHO most folks care much more about the "right now" then they do about their "tomorrow".
Wages will stagnate and we probably hit or move below the bottom in the 1980s, when rapid economic growth and real estate collapse caused a dip.
If the ratio falls to 3.25 and wages dip to 50,000, that's 162,500, or a drop of 10-13% based on your numbers.
The rising trendline in price/income can be explained by an increase in overall debt levels; from ~100% of GDP to >300% of GDP today. As Mathlete has said, the chart does not yet reflect the major decline in income we are only beginning to experience. A further 13% drop in home prices is very optimistic.
A chart of price-to-income ratios and mortgage rates has been added above.
If we see "a major decline in income", we may as well all just slit our wrists now. That's the end of the world, Great Depression II style.
As an economy expands, we would expect housing to take a smaller and smaller portion of income. Having median house-income ratios increase is decidedly bad for an economy unless inflation is permanently contained.
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