Housing-50% Additional Decline Ahead?
Mind the Gap: Home-Price Downside
By SCOTT PATTERSON
March 13, 2008
The economic balance hangs in large part on how much further home prices will fall. A look at one important measure -- the relationship between home prices and household income -- suggests we might not even be halfway there.
Over the long run, home prices and income should march along the same path. As households earn more, they can afford to pay for more expensive homes.
But the two can get out of whack. During much of the 1990s, incomes grew faster than home prices. The landscape shifted around 2000. From the start of the decade through the mid-2006 peak, home prices nearly doubled, thanks in part to falling interest rates. Over the same period, income per household rose just 26%, according to Moody's Economy.com.
In certain states, the disparity was extreme. Seven states, including California, Florida and Arizona, saw annualized growth in home prices outpace income growth by 10 percentage points from 2002 through 2006, according to housing expert Thomas Lawler.
In contrast to Moody's, the New York Times recently reported:
"The median household earned $48,201 in 2006, down from $49,244 in 1999, according to the Census Bureau. It now looks as if a full decade may pass before most Americans receive a raise."
Regardless which is more accurate, the mainstream media is finally catching on about the issue of income disparity and house pricing. Whan builders say they have seen this kind of environment before, they are lying. Never in American History have house prices outpaced incomes to anything close to resembling that last seven years.
Even though we are finally beginning to hear about the obvious disparity between incomes and housing prices, few are commenting on the explosive increase of NON HOUSING related expenses relative to incomes. Expenses such as Property Taxes, Interest, Insurance, Food and Fuel. The the incredible increase in NON HOUSING related burdens over the past seven years have diminished the amont of dollars left for housing even further. As a matter of fact, for many, the NON HOUSING burdens have increased by over $10K which translates into over $150K of additional home mortgage buying power, not factoring higher proptery taxes.
Factoring the above, house prices in CA, FL, and AZ must return to well below 2000 pricing in order for housing to reach historic affordibility levels. That means we still have a ways to go.....at least 50% MORE in many areas.