The ratios in Rich’s graph are confusing me. If the median home price is like $550k, does that mean the average per capita (man, woman, child) is $275k/year? I need a new job. Your kid makes a lot more than me.
[img_assist|nid=1169|title=median price / per capita income|desc=From Rich’s analyses.|link=node|align=left|width=400|height=353]
The ratio is between 7 and 9.5. So the median home price in San Diego varies between 7x per capita income – 9.5x per capita income. Today, we are at 14.5.
Family size is 2.2, so family income would be around $51K I think.
Median home prices vary by neighborhood. One thing that I don’t know is whether this ratio varies by neighborhood. Let’s compare Lakeside to DelMar. Does Lakeside’s lower income correlate with lower median home prices in that zip code, so that the ratio is still 14.5? Or do homeowners in that zip code represent the lowest 25% of wage earners, who stretched to get into the median priced home, and the ratio is even higher?
That’s better. Based on $500k home, a 14.5 ratio puts per-capita income at $35k/year. I can believe that. Anyways, I believe the historical curve. Interesting. Looks like a bubble to me.
Rich is the most analytical and accurate real estate forecaster in the U.S., IMO. Nobody else has made any charts like his. I wonder how he came up with the idea of charting price/income. He could also have done price/rents, which is the usual metric quoted by economists. But even those guys with the price/rent metric have not made any graphs showing the data back several decades.
The piggington price/income chart is the most powerful picture of our current situation. I took one look at that, and decided it was time to sell. Thank goodness my husband was ready , too.
I will forever owe my decision to sell my house, to the excellent information that was provided by Rich Toscano. And remember, back when he did all this work, the real estate frenzy was still in full force. He was a true contrarian. And he ‘s not only smart, he’s very nice too. I met him at the piggington meetu-up. And he has the most beautiful wife.
[img_assist|nid=1180|title=Irrational Exuburence|desc=|link=node|align=left|width=400|height=359]
You can find similar historical price/income graphs out there. I got the above chart from the Wikipedia entry on the housing bubble. The article shows a good comparison of the recent US run-up in prices with the 1990 peak in Japanese RE, and their 16 year decline.
“The price to income ratio is the basic affordability measure for housing in a given area. It is generally the ratio of median house prices to median familial disposable incomes, expressed as a percentage or as years of income”
Rich used per capita income, not median family disposable income. I know he also used the OFHEO data, and now the Case-Shiller index.
I don’t know of anyone else who charted this by city.
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