New Home Prices vs. Median Income Chart

The more you look at this, the more it seems imperative to get the much larger data set for existing home sales from the NAR. If anyone knows where that can be found, please advise.
Regarding the chart above, I dare not make any comments (see this item from earlier today), but you probably know what I'm thinking about that squiggly red line...

Comments

[User 340750:]

Ratio of median income to median price GREATER than one?????
The inverse seems more likely.

Jan 20 07:48 AM

[libertarian77:]

This chart is very interesting. If you have the data, it would be great to add some sort of proxy for composite mortgage rates and mortgage lending standards. Clearly, one of the key inputs to housing prices is the cost and availability of financing as very few people buy a house with cash.

Jan 20 08:12 AM

[urbanexus:]

This is interesting but national figures mask the tremendous variations in metropolitan housing markets. And we must keep in mind that while affected by monetary and other national policies, there is no national housing market. In a chart like this it would be interesting to have third line that would showing the net aftertax cost of owning the median priced house (which would require assumptions about the percentage of purchase price financed, etc.)

Jan 20 08:27 AM

[Mike Carr:]

What the chart shows is that when I go to get a mortgage, the bank looks at my income. Traditionally, good credit meant I could get a mortgage for 3-5x my annual income and maintain the standard underwriting ratios. Remember when they wanted the payment to be 25% or less of my income? This would be the ratio of 4 that that squiggly red line was at or below for decades.

It got out of line with zero down, no-docs. Now, we are very close to the historic norm which would indicate prices are nearing a bottom.

Jan 20 08:32 AM

[Insiderman:]

I agree with USER340750. This chart should be Median Price to Median Income.

Jan 20 09:08 AM

[nobull:]

Are the numbers right? Looking historically, the ratio still seems high. If you read any of the financial advice books from before the insane bubble, the advice was not to exceed 3 times your annual income.



On Jan 20 08:32 AM Mike Carr wrote:

> What the chart shows is that when I go to get a mortgage, the bank
> looks at my income. Traditionally, good credit meant I could get
> a mortgage for 3-5x my annual income and maintain the standard underwriting

Jan 20 09:09 AM

[GMC:]

If we don't want to repeat the crash we have experienced of late then the old traditional loan payment amount should not exceed 25% of income. That alone would be great insurance against the "normal" trends in house price verses income and year-to-year sales figures that continually go up, up, and up making it impossible to afford a house unless inflation takes it ever higher and we can sell it at inflated values or refinance it until we are within a reasonable pay range for our incomes.
This year's sales shouldn't have to constantly exceed last year's sales to show a strong economy. It would be so much better if people could buy a house and live there while at the same time easily making their house payment and still be able to go out and buy other things without being house poor.
The correction is painful right now but getting back to living within our means without depending on artificial inflationary pressures on housing due to easy credit is the best long term cure for the econmony.

Jan 20 09:57 AM

[goldstriker:]

The main problem with housing hasn't really been addressed yet. Qualifications for the purchase of a home is based on "household income" which is a problem; it should be based on the traditional single person income. This way there is protection if there are two wage earners to allow for a rainy day or to purchase "goodies" without affecting the mortgage payments. If the gross wage of a single earner is $50,000, than the price of the home should be 3 times that or $150,000. We still have a ways to go in most parts of the country. Common sense must prevail to prevent disasters.

Jan 20 10:39 AM

[alphadominance:]

I did the calculations based on the convention ratio used for lending using Seattle data for 2006 and found real estate to be 89% overvalued on the average. Since loan qualification is going back to the stringent older requirements I can't see any way but for prices to return to a rational relationship with incomes. Doesn't bode well for those who invested in real estate with the intent of making a quick buck, but great for first time homebuyers. These are the people the market ought to be serving in any case in my humble opinion.
alphadominance.com/

Jan 20 11:00 AM

[South Bay:]

Tim Iacono
How does this play into your predictions about the Sacramento housing market bottoming about 6 months ago? Are you still in denial?

Jan 20 12:23 PM

[carey_jim:]

Median or mean home prices are more meaningful that median or mean salaries but placed together in the form of a ratio, they don't tell us much.

It would be better to give a more finely grained analysis based on, say, twentieth percentile divisions of income and home values.

That would give us a better idea of future sales and affordability.

(It's easy to criticize, of course, and much harder to actually come up with a more finely grained statistical analysis, let alone make it easy to understand! But it would be helpful to see one.)

Jan 20 12:58 PM

[D. McHattie:]

The following article by John Lounsbury provides a more thorough analysis. I have found it very educational.

seekingalpha.com/artic...

Jan 20 07:35 PM

[Pseudonym101:]

"Flip this...!" "You reap what you sew!"

Jul 08 11:43 AM

[Pseudonym101:]

I can't even afford to live where I was borne thanks to, "Artificially inflated" housing prices. I'm glad the bottom droped out of the market!
All you greedy so & sos' can just suck it up. I got the last laugh....! Now you're taking the inflated artificial in the shorts!

Jul 08 11:59 AM