November 23, 2009
By Jed Smith, Managing Director, Quantitative Research, and Keunwon Chung, Statistical Economist
One approach to examining home prices is the measurement of median home prices relative to median household incomes: along with interest rates, income is a major determinant of how much house one can afford.
We used NAR data for median home prices in a yearly quarter, based on the median of all NAR existing home sales in the given quarter. We used annual HUD data for median income, interpolating data in converting from an annual to quarterly basis. We computed the ratio of median price to median income on a quarterly basis from 1990 through the third quarter of 2009.
During the 1991-99 time frame, the price to income ratio was 2.88; for the first three quarters of 2009 the ratio was 2.90. All real estate is local, so the national figure is just a summary.
Where data were available, we computed similar ratios for over 100 MSA’s: some had ratios above their 1990’s ratios, and some had ratios below–showing that some markets have had significantly more price adjustment than others.
Overall, the data seem to indicate that relative to historical performance we are in the range of price behavior prior to the 2006 run-up, indicating that the housing price bubble is largely gone at the national level.
Copyright National Association of REALTORS®, Reprinted with permission.
