Great interactive chart I meant to get to earlier this week, via the NYT:

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housing-crisis-not-over

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Source:
For Housing Crisis, the End Probably Isn’t Near
DAVID LEONHARDT
NYT, April 21, 2009

http://www.nytimes.com/2009/04/22/business/economy/22leonhardt.html

Category: Real Estate, Wages & Income

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

44 Responses to “Median Income vs Median Home Price”

  1. Mike in Nola says:

    Barry, I suppose you weren’t watching CNBC midmorning. I dozed off and put it on for about 3 minutes (mostly commercials) to see what was happening.

    While there was a token bear in the sexobox, he was suitably brutalized and the clear message was that the housing crisis over.

    While I turned it off too quickly to find out, I don’t think any but the bear were capable of comprehending that median home prices rising might just indicate more higher priced homes coming onto the market and getting marked down as well. That happened here in Houston late last year. I wrote to the real estate reporter about it. She was actually a good enough reporter to check into the possibility and report it.

  2. Mike in Nola says:

    My reference was to the median home price rise touted in this article:

    http://www.cnbc.com/id/30367334

    Looks like Larry Yun is still at it.

  3. leftback says:

    Is that true Barry, NYC = 6.9, and it peaked at 8? Amazing…
    A testament to the power of the Banker Bonus Bubble that was peculiar to NYC.

    The NYC regional housing market is absolutely full of denial. So is the equity market.
    It feels as though either of them could begin to crumble at any moment.

    Does this remind anyone else of September?
    Nice weather, improving sentiment, lousy fundamentals, retail investors upbeat….

  4. Mannwich says:

    Although the Twin Cities didn’t have the run up like the truly bubblicious regions, I’m seeing more and more “For Sale” signs here languish on the market, especially the higher end homes, none of which seem to be moving. If those don’t sell by summer, they likely won’t sell this year. That’s the next part of this crisis, higher end homes, along with credit card defaults, comm RE, and home mortgage defaults from option ARM resets. The FHA market may fall apart too, once more of those default.

  5. Bruce N Tennessee says:

    Well, maybe not everyone in the MSM is out with the rose-coloreds on today:

    http://finance.yahoo.com/news/New-data-on-jobs-housing-apf-15012856.html?sec=topStories&pos=1&asset=&ccode=

    New data on jobs, housing signal no recovery near

    Jobless claims up more than expected and homes sales drop, defying hopes for recovery

    …Meanwhile, here at the salt mine, gotta get back to work.

    Great weather today and all weekend…and got my home computer back from my IT “person” … it runs like a colt!

  6. karen says:

    LB, the equity market has nothing to do with reality… equities are a perceived value, and can actually be cash flow positive. The housing market is a different story… unlike stocks, homes have to be maintained and have a constantly rising overhead… so all those billionaires and millionaires that bought multiple vacation homes or built spec houses are bleeding money by the month.. Look at the market in Jackson, WY, for instance… Big Sky, MT. Aspen has 62 listings over $10 Million. Well, we’re are in agreement on where real estate prices are headed despite my reflationary bent…

  7. Bruce N Tennessee says:

    One other central bank being hauled kicking and screaming into reality:

    http://www.theglobeandmail.com/servlet/story/RTGAM.20090423.wbankofcanada0423/BNStory/crashandrecovery/home

    “OTTAWA — Canada’s gross domestic product contracted at the fastest pace on record in the first quarter, reflecting a new economic reality of fewer jobs, lower profits and weaker spending, the Bank of Canada said Thursday.

    The economy shrank at an annual rate of 7.3 per cent in the first three months of 2009, a dramatic collapse that the central bank said will force it to adopt “unconventional” methods of monetary policy making if the freefall continues.”…..

    Yes, resource rich Canada, very soon to be “Bernankeeeeed”

    …and these fellows, too, the central bank of Canada, was last year thinking they might escape the recession/depression due to their abundance of natural rescources…it made interesting reading at the time…

    Oh, well…

  8. leftback says:

    Lots and lots of houses for sale in CT between $1.5M and $5M.
    No buyers, oddly enough….

  9. leftback says:

    Greenwich Homes of Genius #1:
    http://www.wpsir.com/detail.aspx?mlsid=98412076
    864 sq. ft. of Cape for the ambitious young professional.

  10. Transor Z says:

    Check out these dueling stories:

    Bloomberg:
    U.S. Economy: Existing Home Sales Hover Near Four-Month Average
    By Courtney Schlisserman and Bob Willis

    April 23 (Bloomberg) — Sales of existing U.S. homes in March stayed near a four-month average, and prices rose from February, a sign the housing recession has stopped getting worse.

    While today’s figures from the National Association of Realtors showed purchases fell more than forecast to an annual rate of 4.57 million, economists noted that the sales level is hovering near the level it reached in November. The Labor Department said separately that U.S. jobless claims rose to 640,000 last week, matching analysts’ forecasts.

    Prices for home resales posted their biggest monthly gain since June 2005, and NAR chief economist Lawrence Yun said that some regions are seeing multiple bids on properties. Today’s housing figures indicate that the record-low mortgage rates fueled by the Federal Reserve are stanching the industry’s hemorrhage.
    http://www.bloomberg.com/apps/news?pid=20601087&sid=agJmiOjZKbwk&refer=home

    ——————————

    Boston Globe:
    Drop in home sales pulls stocks lower
    By Tim Paradis
    AP Business Writer / April 23, 2009

    NEW YORK—An unexpectedly large drop in home sales dashed hopes Thursday that the economy is healing some its biggest wounds.

    A 3 percent drop in sales of existing homes in March stirred worries that housing will remain a drag on the economy. The slump in housing is making banks hesitant to lend because of worries they will lose money as home prices deteriorate.

    The grim housing report overshadowed stronger-than-expected earnings reports from Apple Inc. and eBay Inc. as well as defense contractor Raytheon Co.

    Weaker-than-expected earnings at shipping company UPS Inc. and a rise in unemployment claims added to the worries about the economy.

    http://www.boston.com/business/markets/articles/2009/04/23/strong_report_from_apple_boosts_stock_futures/

  11. Groty says:

    The title should be “For Housing Crisis, the End Probably Isn’t Near…. for New York and San Francisco”.

    For all the other markets in the graph, the median house price to median income ratio is at or below 1979 levels. In 1979, the average mortgage rate was more than double current 30 year mortgage rates. That means, on average, housing in all but the two outlier markets is far more afforable today than it was in 1979.

    http://www.freddiemac.com/pmms/pmms30.htm

    Throw in the $8K tax credit for first time buyers, and excluding the NY and SF markets, and housing is a veritable bargain relative to 1979 home price/income levels.

  12. DeDude says:

    I am still not sure that the median income to median home price is such a great metric for predicting where house prices will have to go. The thing that really counts for purchase decisions is monthly payment. So you somehow have to take interest rates into account. Does anybody calculate a % of median monthly income to pay mortgage on median priced house. That may be more informative. However, that still does not account for the current problem that a lot of people cannot qualify for regular loans or for any loan at all.

  13. Onlooker from Troy says:

    >>Mike in Nola Says:
    April 23rd, 2009 at 12:15 pm

    I don’t think any but the bear were capable of comprehending that median home prices rising might just indicate more higher priced homes coming onto the market and getting marked down as well.”<<

    Spot on. Dr. Housing Bubble Blog has been on that angle for a long time. Of course he’s (she’s?) been way ahead of the housing story for years. And by the time things that have been uncovered/analyzed/disclosed, etc. in the best of the blogs finally shows up in the mainstream press and from most economists, it’s way late in the game. And everybody’s “surprised” by the latest development. As CR would say, Hoocoodanode??? LOL

  14. leftback says:

    Greenwich Homes of Genius #2:
    http://www.wpsir.com/detail.aspx?mlsid=S980929
    This one is $1.4M for 1,080 sq ft.
    He he. You have got to be joking. It will be a slow spring for Greenwich realtards.

  15. EAR says:

    leftback…

    “The NYC regional housing market is absolutely full of denial. So is the equity market.
    It feels as though either of them could begin to crumble at any moment.”

    As an owner in NYC I can tell you that I don’t feel that way. But just to be rational and content, I have accepted the fact that I won’t be a seller for a long time. The equity market on the other hand…

  16. Bruce N Tennessee says:

    Lefty,

    Reading between the lines…are you thinking of becoming a homeowner?

  17. karen says:

    Bruce, let’s keep our fingers crossed that he’s too cerebral for that notion.

  18. Bruce N Tennessee says:

    Sorry, I couldn’t resist this, from my above post about the bank of Canada….

    “Governor Mark Carney, who was expecting a first-quarter contraction of 4.8 per cent when he last discussed his economic outlook in January, blamed the faster-than-expected economic collapse on the failure of U.S. President Barack Obama’s administration……”

    Yes, Obama is now being blamed for the collapse of the Canadian economy…I am thinking Bernanke could blame the administration in England, and so on, and so on….

    Some days you should just stay in bed….

  19. Bruce N Tennessee says:

    Karen,

    It may have something to do with a place for the Swedish twins…just a thought.

  20. forget the old metrics, going Fwd:, beyond P+I, and including P+I+T+I+E, the T&E are going to put a bite on peep’s appetite for RE ‘debtorship’ exposure..

    yes, E, here, =Energy. Cap n’ Trade will be good for +20% move, all by its self..

  21. karen says:

    Bruce, you couldn’t be more right… about the some days you should just stay in bed. Another 70 or so killed in Iraq suicide bombings today. The world is insane. I can’t fix it; but I can hide from it, i guess.

  22. Mannwich says:

    @leftback: You can buy my house if you want it? I want out. Renting, to me, looks good again. More freedom.

  23. arcticpup says:

    hey Bruce,

    Canada lags the United States… by about 6 months to a year… hence housing prices just started to fall in November of 2008… RE prices are down in Vancouver, Calgary, Edmonton, Toronto and Windsor. The rest of Canada is doing okay price-wise… but without a recovery of the Canada’s largest trading partner… Canada is in trouble.

    Windsor is across the border from Detroit, and there was talk of $25,000 CDN homes.

    And… Canada is pony up cash to deal with the Detroit-3 problem. Chrysler is talking about pulling completely out of Canada. And a GM bankruptcy is a nightmare for the Ontario Gov’t which has legislation to guarantee private pensions up to a set amount.

    Ontario is much like Michigan and Ohio… they depend on the automobile industry for employment. And about 500,000 in Ontario are in jeopardy. So yeah if Obama fucks up… Canadians’ will be pissed.

  24. call me ahab says:

    Transor Z-

    two spins on the same information- “don’t worry be happy” or “the end of the world as we know it”

  25. [...] Go here to see the original:  Median Income vs Median Home Price | The Big Picture [...]

  26. call me ahab says:

    @ foghorn longhorn

    you’re right that was interesting- thanks for the link

  27. Transor Z says:

    Maybe somebody should tell Barry that Wall Street 24/7 is predicting that Border’s will disappear.

  28. leftback says:

    Shame about Saturn, they were actually good cars. Massively boring market today.
    By the summer we will probably find everyday is like this.

  29. MRegan says:

    There are some interesting comments on deflation in the link below:

    http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2009/04/20/quarterly-review-and-outlook-first-quarter-2009.aspx

    The conclusions of the authors of this article harmonize with Hugh Hendry’s views, it would seem.

  30. MRegan says:

    Mannwich–

    Thanks for bringing that article to my attention. I read it as quite positive. Pricing. The whole thing was about pricing. The presence of so much credit imposes insane pricing. The contractor who did the bathroom redo for 6K ‘normally’ would have charged 3X as much. WHAT? An 18,000 dollar bathroom in house like the one described creates an inefficiency in pricing which either gets perpetuated until it collapses or it collapses. One way or another, that 18,000 goes to 6,000.

    This post by BR recalls for me a little back and forth I had with Otto P. Muckerfuss (that was his name, right?) in which I referenced the price of an entry-level home in Cville, Va. The point I was trying to make was that there is a percentage of every price in our economy which must be wrung out. Pricing. The fundamental question is: What would I be willing to pay for X? (Not me and coke-addled mortgage broker, no, just me)
    The same principle is at work among the wall street types. What are they worth? I think likely they are experiencing the tough side of price discovery.

  31. Mannwich says:

    @MRegan: Totally agree. Once the excess is wrung out of the system, prices come down for everyone and on everything. That’s the point and it’s the only way forward if we truly want to fix this mess instead of kicking it forward and making it bigger in the end. We need to deleverage and wring out this excess but the elites don’t want it. It puts their wealth and power in peril and clearly hurts them the most.

  32. danm says:

    Bruce N Tennessee:

    Yup. Up here the economy is tanking yet the Cdn market keeps on going up. I can’t figure out if it’s because of the idea that the economy will be bouncing back soon, if investors are picking up on the inflation potential or it’s simply short covering.

    Like I’ve said before, many retirees in my entourage are jumping into junk bonds for that extra yield (that 500K portfolio generating 2.5% or less than 12K in revenue is making some quite antsy)

    Canada’s Association for the 50Plus (CARP) is pushing for universal pension coverage with a 20% annual contribution. Ouch!

    I just don’t understand what it’s going to take to make people realize how bad it is!

    Last year, we moved from Montreal to Ottawa… following the money! I’m amazed by the number of people we have bumped into who did the same, moving out of bubble areas and moving here that is.

  33. Onlooker from Troy says:

    Mannwich:

    From the NYT article: “Some homeowners are still holding off on planned renovations in hopes that costs will go down further. ”

    Yes indeed. The mindset is setting in and this will further depress prices. But it’s good to see people rewarded who didn’t chase houses and stuff in the mania, and patiently waited, saving their money.

  34. edhopper says:

    “I am still not sure that the median income to median home price is such a great metric for predicting where house prices will have to go. The thing that really counts for purchase decisions is monthly payment. So you somehow have to take interest rates into account. Does anybody calculate a % of median monthly income to pay mortgage on median priced house. That may be more informative. However, that still does not account for the current problem that a lot of people cannot qualify for regular loans or for any loan at all.”

    That was the NAR and Mortgage Brokers line during the Bubble. Only monthly payments matter. They were wrong. Robert Shiller has shown that median income is the best indicator for sustainable housing prices over the last 100 years. (the period he had good data for).
    The chart shows a big decline is coming in the New york area.

  35. DeDude says:

    >>That was the NAR and Mortgage Brokers line during the Bubble. Only monthly payments matter. They were wrong<<

    No they were actually right. That is why we got all those people to buy all those high priced houses. They only thought about monthly payments, not ratio of their income to price of the house. And if you in 2000 had used Shiller’s median income to median cost as a predictor for where house prices would be in 2007 you would have been dead wrong. The main reason that he may be right in the very long run is that in the very long run interest rates will return to where they were, and if they are the same they wont influence the equation.

  36. DeDude says:

    Now part of the bubble creation was also due to the fact that the true monthly payments were concealed in all those the funny loans. So the median monthly payment that was shown to the borrower was false (or only true for a limited period), and therefore not backing a sustainable house price.

  37. edhopper says:

    Yes. I was trying to point out that that thinking was abnormal and only held for the bubble years. In the previous 100 years the price/income ratios held.
    Of course it only worked in the bubble years because lenders abandoned their normal requirements. They aren’t now and I doubt someone can get a loan for a house that is 6 or 7 times income. Therefore price to income will be the determining factor again.

  38. [...] Median Income vs Median Home Price (mentioned yesterday) [...]

  39. [...] Median Income vs Median Home Price (mentioned yesterday) [...]

  40. [...] priced and over valued by traditional metrics. These include:Median Income vs Median Home Price (mentioned yesterday) Ownership Costs vs Renting Costs Market Value of Housing as a percentage of GDP Housing Inventory [...]

  41. johoo says:

    Some describe the plankton theory of housing market recovery- the market as a food chain . The low end — sells through to first time buyers, inventory drops, prices stablize and people build equity. Then, some time thereafter as they need to or want to they can trade up with their equty and higher life cycle earnings.

    You can see that pattern beginning again in California. Inventory of low priced housing in better locations has become depleted over the past 6-9 months. Foreclosures appear to be clearing in some reasonable time frame. However the mid and high end just isn’t selling.

    No one know if this is a temporary blip or the start of a stablizing market

  42. [...] Median Income vs Median Home Price (mentioned yesterday) [...]