Median Home Prices vs. Median Income Data Analysis



U.S. Median Home Prices and Income Ratios 1963 to 2007 | |

|(Median Multiples by year, actual dollars) |

| |  |Period |Ratio |Median Home |Med|  |

| | | | |Value |ian| |

| | | | | |Inc| |

| | | | | |ome| |

| |  |Median Ratio 1976 to 2000 |3.3 |  | | |

| |  |Median Ratio 2001 to 2007 |4.0 |  | | |

| |  |Standard deviation (ratio) |0.4246 |  | | |

| | | | | | | | | |

|Source: | | | | | | | | |

| | | | |

| | | | | | |

What goes up must come down.

Housing corrections are normal; spikes are followed by a corresponding dip.

A steep climb is generally followed by a steep fall.

Homes are too expensive for most people to afford when they exceed three and one half times their annual income. Though the gap between home prices and earnings has grown steadily since the '70s, the sharp upward trend between 2000 and 2006 exceeded that traditional high water mark. Due to over-leveraging by financial institutions and low interest rates, credit was irrationally easy to obtain and interest rates were artificially low. Then the bubble burst in 2006 and home prices started their march downward.

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Some market watchers and economists say the downward trend won't stop until home prices and income are more appropriately aligned. This means homeowner and the financial system that was overleveraged will have to take massive losses before a recovery can be sustained.

U.S. home values may need to fall an additional 7%-16% to restore an appropriate relationship between prices and income. However, in the U.S. during 2008 we lost enough value to achieve a 3.5 ratio of income to home price. Unfortunately, many other countries are much worse off. Their ratios are much higher.1 In a global economy, to some extent we rise and fall together.

1Some economists suggest 2.7 should be the target because it was the historical norm. See interesting article at

However, the authors of the 5th Annual Demographia International Housing Affordability Survey: 2009 blame increasing population (baby boomers) and restrictive land use policies for decreasing affordability. They use a target median multiple of 3.0 or less as "affordable." Both were modeled for contrast.

See the Demographia report for international multiples.

2 To be consistent in using the same data sets (Census data), this scenario target is also developed based on norm/median ratio between 1963 and 2000. A maximum median multiple of 3.5 was also modeled.

3 This calculation uses the FRB Statistical Supplement 2007 all holders total amount outstanding 1-4 family mortgages [$11,164,150 (a)] divided by the FRB average mortgage amount ($200K) from its 8/08 report (b) to determine # of mortgages for the entire US market.

(a) Statistical Supplement to the Federal Reserve Bulletin, December 2008. 1-4 family homes.

(b) Federal Reserve Bank, "A Snapshot of Mortgage Conditions with an Emphasis on Subprime Mortgage Performance,"August 27, 2008, p.4. This report cites the source as "Calculations by Federal Reserve Board staff using Mortgage Bankers Association and First American LoanPerformance data."

                 

4First American Core Logic, February 18, 2009

Report Residential Property Values Fell $2.4 Trillion During 2008 Based on First American CoreLogic and LoanPerformance Home Price Index Analytics

|U.S. Census Median Income |

| |

|YEAR |NUMBER (THOUS.)|CURRENT DOLLARS|% YOY Change |2006 |% YOY Change|

| | | | |DOLLARS | |

|1947 |37,237 |3,031 |-- |23,433 |-- |

|1948 |38,624 |3,187 |5% |22,794 |-3% |

|1949 |39,303 |3,107 |-3% |22,493 |-1% |

|1950 |39,929 |3,319 |7% |23,738 |6% |

|1951 |40,578 |3,709 |12% |24,569 |4% |

|1952 |40,832 |3,890 |5% |25,259 |3% |

|1953 |41,202 |4,242 |9% |27,365 |8% |

|1954 |41,951 |4,167 |-2% |26,649 |-3% |

|1955 |42,889 |4,418 |6% |28,377 |6% |

|1956 |43,497 |4,780 |8% |30,243 |7% |

|1957 |43,696 |4,966 |4% |30,444 |1% |

|1958 |44,232 |5,087 |2% |30,307 |0% |

|1959 |45,111 |5,417 |6% |32,079 |6% |

|1960 |45,539 |5,620 |4% |32,693 |2% |

|1961 |46,418 |5,735 |2% |33,038 |1% |

|1962 |47,059 |5,956 |4% |33,980 |3% |

|1963 |47,540 |6,249 |5% |35,177 |4% |

|1964 |47,956 |6,569 |5% |36,493 |4% |

|1965 |48,509 |6,957 |6% |38,007 |4% |

|1966 |49,214 |7,532 |8% |40,040 |5% |

|1967 |50,111 |7,933 |5% |40,923 |2% |

|1968 |50,823 |8,632 |9% |42,813 |5% |

|1969 |51,586 |9,433 |9% |44,833 |5% |

|1970 |52,227 |9,867 |5% |44,741 |0% |

|1971 |53,296 |10,285 |4% |44,654 |0% |

|1972 |54,373 |11,116 |8% |46,820 |5% |

|1973 |55,053 |12,051 |8% |47,768 |2% |

|1974 |55,698 |12,902 |7% |46,532 |-3% |

|1975 |56,245 |13,719 |6% |45,694 |-2% |

|1976 |56,710 |14,958 |9% |47,118 |3% |

|1977 |57,215 |16,009 |7% |47,403 |1% |

|1978 |57,804 |17,640 |10% |50,031 |6% |

|1979 |59,550 |19,587 |11% |50,697 |1% |

|1980 |60,309 |21,023 |7% |48,976 |-3% |

|1981 |61,019 |22,388 |6% |47,623 |-3% |

|1982 |61,393 |23,433 |5% |47,009 |-1% |

|1983 |61,997 |24,580 |5% |47,291 |1% |

|1984 |62,706 |26,433 |8% |48,857 |3% |

|1985 |63,558 |27,735 |5% |49,561 |1% |

|1986 |64,491 |29,458 |6% |51,704 |4% |

|1987 |65,204 |30,970 |5% |52,582 |2% |

|1988 |65,837 |32,191 |4% |52,720 |0% |

|1989 |66,090 |34,213 |6% |53,714 |2% |

|1990 |66,322 |35,353 |3% |52,869 |-2% |

|1991 |67,173 |35,939 |2% |51,885 |-2% |

|1992 |68,216 |36,573 |2% |51,494 |-1% |

|1993 |68,506 |36,959 |1% |50,782 |-1% |

|1994 |69,313 |38,782 |5% |52,173 |3% |

|1995 |69,597 |40,611 |5% |53,349 |2% |

|1996 |70,241 |42,300 |4% |54,127 |1% |

|1997 |70,884 |44,568 |5% |55,823 |3% |

|1998 |71,551 |46,737 |5% |57,734 |3% |

|1999 |73,206 |48,831 |4% |59,088 |2% |

|2000 |73,778 |50,732 |4% |59,398 |1% |

|2001 |74,340 |51,407 |1% |58,545 |-1% |

|2002 |75,616 |51,680 |1% |57,920 |-1% |

|2003 |76,232 |52,680 |2% |57,751 |0% |

|2004 |76,866 |54,061 |3% |57,705 |0% |

|2005 |77,418 |56,194 |4% |58,036 |1% |

|2006 |78,454 |58,407 |4% |58,407 |1% |

|2007 |77,908 |61,355 |5% |61,355 |5% |

|20081 | |54,800 |-11% | | |

|U.S. Census Median and Average Sales Prices of New Homes Sold in United States |

| |

|Period |Median |% YOY Change |Average |% YOY Change|

|1963 |18,000 |-- |19,300 |-- |

|1964 |18,900 |5% |20,500 |6% |

|1965 |20,000 |6% |21,500 |5% |

|1966 |21,400 |7% |23,300 |8% |

|1967 |22,700 |6% |24,600 |6% |

|1968 |24,700 |9% |26,600 |8% |

|1969 |25,600 |4% |27,900 |5% |

|1970 |23,400 |-9% |26,600 |-5% |

|1971 |25,200 |8% |28,300 |6% |

|1972 |27,600 |10% |30,500 |8% |

|1973 |32,500 |18% |35,500 |16% |

|1974 |35,900 |10% |38,900 |10% |

|1975 |39,300 |9% |42,600 |10% |

|1976 |44,200 |12% |48,000 |13% |

|1977 |48,800 |10% |54,200 |13% |

|1978 |55,700 |14% |62,500 |15% |

|1979 |62,900 |13% |71,800 |15% |

|1980 |64,600 |3% |76,400 |6% |

|1981 |68,900 |7% |83,000 |9% |

|1982 |69,300 |1% |83,900 |1% |

|1983 |75,300 |9% |89,800 |7% |

|1984 |79,900 |6% |97,600 |9% |

|1985 |84,300 |6% |100,800 |3% |

|1986 |92,000 |9% |111,900 |11% |

|1987 |104,500 |14% |127,200 |14% |

|1988 |112,500 |8% |138,300 |9% |

|1989 |120,000 |7% |148,800 |8% |

|1990 |122,900 |2% |149,800 |1% |

|1991 |120,000 |-2% |147,200 |-2% |

|1992 |121,500 |1% |144,100 |-2% |

|1993 |126,500 |4% |147,700 |2% |

|1994 |130,000 |3% |154,500 |5% |

|1995 |133,900 |3% |158,700 |3% |

|1996 |140,000 |5% |166,400 |5% |

|1997 |146,000 |4% |176,200 |6% |

|1998 |152,500 |4% |181,900 |3% |

|1999 |161,000 |6% |195,600 |8% |

|2000 |169,000 |5% |207,000 |6% |

|2001 |175,200 |4% |213,200 |3% |

|2002 |187,600 |7% |228,700 |7% |

|2003 |195,000 |4% |246,300 |8% |

|2004 |221,000 |13% |274,500 |11% |

|2005 |240,900 |9% |297,000 |8% |

|2006 |246,500 |2% |305,900 |3% |

|2007 |247,900 |1% |313,600 |3% |

|2008 |231,400 |-7% |292,400 |-7% |

| | | | | |

-----------------------

Source: US Census data

1Current Census Data is not available for 2008 at this time; ESRI projections only available.

These values were filled in but not used due to inconsistencies based on different data source.

ERSI 2008 projection: In 2008, median household income is $54,800, average household income is $73,800.



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