More Housing Charts: Existing Home Prices vs. Median Income, Interest Rates

Data for existing home prices was generously provided by CM yesterday, 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.


Here's the price-to-income ratio along with mortgage rates:
It appears that the pre-1990 and post-1990 relationships are quite different.

Comments

[shrivman:]

Am I reading that right - a 2.5% mortgage? If so - where the heck can you get such a thing. Perhaps if you're connected with the TARP program and are a failing large bank[er], but not us mere mortals!

Jan 22 11:38 AM

[Georgetastic:]

Wow, thanks for these graphs.

Jan 22 12:30 PM

[Hmm?!:]

Good catch Shrivman!

Tim,
You are usually quite good. Answer??

Also are the ARMs included in this? They should be taken out completely since they are temporary and mean little except for bubble building. Then you could refactor in the ARMs for their net effect when they become due.


On Jan 22 11:38 AM shrivman wrote:

> Am I reading that right - a 2.5% mortgage? If so - where the heck
> can you get such a thing. Perhaps if you're connected with the TARP
> program and are a failing large bank[er], but not us mere mortals!

Jan 22 12:52 PM

[Jack Walker:]

Tim,

Is there a better source for the median household income data than the US Census Bureau? It appears their most recent data is for 2007.

In addition, there is a wide distribution between geographical areas. In some locations, houses can be purchased for 3.5 times median household income, while in many California and Northeast locations this ratio as a standard is completely unrealistic. Does this mean the more expensive areas will have greater proportional adjustments in the future or will they always be unrealistic based upon this standard?

A national chart is of interest and certainly indicates the trend is now changing, but specific regional ones have more meaning for most people.

Jack

Jan 22 01:31 PM

[Jon Smirl:]

Seems to me like lower interest rates are only good for the sellers, not the buyers. The buyers act with a herd mentality and bid up prices thereby losing any benefit that they might have gained from lower rates. Of course all of the fee-based participants fan the flames since higher prices net bigger fees. Biggest winner is someone who was able to refi at the lower rates.

I experienced silly bidding wars in Boston where people would routinely bid high-end homes up $1M over their replacement costs. This bidding was fueled by low rates allowing people who would not have normally been able to purchase these homes to bid on them thus increasing demand.

Jan 22 02:14 PM

[rockerchic:]

Shrivman and Hmmm... you read the chart wrong. Look at the left side numbers on the bottom chart, not the right.

Jan 22 02:37 PM

[User 375579:]

shrivman, not to hard to see that fixed rate is on the left axis...


On Jan 22 11:38 AM shrivman wrote:

> Am I reading that right - a 2.5% mortgage? If so - where the heck
> can you get such a thing. Perhaps if you're connected with the TARP
> program and are a failing large bank[er], but not us mere mortals!

Mar 12 10:03 PM

[Mostly:]

During summer of 2007, I had to write a thesis on the relationship and history of crashes and bubbles. I used the two charts in this article in my studies, as a matter of fact, it was after viewing these two charts in July of 2007 I decided to pull all my retirement accounts out of the stock market and into a cash account within the retirement accounts, making at the time, around 2% interest and my husband whined about the low interest rate - he ended up bragging about that 2% we made when everyone else was losing money. We already had the house on the market, but were too late for that, it didn't sell - if only I'd written that report 6 months earlier we might have saved on real estate, too. Of course, that 2% interest rate eventually dwindled forcing me to brave back into the waters...and wish I had more time to study the market like I did in 2007.

If I had not been writing that report at that time and saw these charts when I did...I'd be in sorry shape financially right now.

Now, if an undergrad writing her first thesis on economics could see it coming...we even talked about it in class quite a bit, and our professor was an assistant to a US Senator. I don't believe for a minute that Wall Street didn't see it coming, they had plenty of time to hatch an escape plan, would that be TARP? I wonder how much of this drama playing out about bankers losing bonuses is exactly that, a well-planned out, pre-written, drama to be vetted out to news agencies to make those who lost their money feel better.

Nov 01 10:44 AM