a freindly comment on my blog asked for a housing update. I posted that I predicted home could decrease >20% resulting in $6.6 Trillion paper losses last summer. Nick posted a comment below and I have adjusted the income by the CPI. Pretty poor on my part to have not caught that the first time. This chart is now updated. The average ratio of HH income to Home value is 2.95:1. As of Feb 2008 we are roughly at 4:1, sadly we could have 25% more price declines if we return to historical norms.
Unfortunately we are only half way there. I have visited the securitisation forum, watched the ratings agencies and a few of the other crazy activities that lead to this very predictable bubble. Everybody liked free money and value on the way up, right. It was a glorious sanctimonious ride.
All along the way few pointed to the obvious housing indicator affordability. something is only worth what people can pay for it. Supply and demand are bogus concepts as housing is very elastic, think of the 4-6 people that lived in the average 1,000 Sqf US home in 1950 vs. the 2.3 residents of today average 2,300 sqft
McMansion Barn. Please note my architectural sensibilities leave me with little love for the contemporary US home. My wife puts up with my complaining about it all the time. Give me a great modern scandinavian home anytime over some jumped piece of wooden sticks wrapped in Tyvek and plastic siding. Most of the post 1970's US housing stock is utter junk.
Anyway here is an update of the affordability data, the spread sheet and the source material. Make up your own mind. I am but an opinion in the wild and just here to spice things up a bit. I was very disappointed to make my data more robust. I used household income instead of individual income. If I have made a mistake here please point it out. The picture is worse than I thought.
Here is the Median US house price end of year. Here is the number of houses. Median household income pg. 37. I made a generous estimate of median income increases of 2% for 07 and 08. please note the use of median instead of average as it is a better way of describing the "most common experience" of the affected. Unfortunately the news is worse.
I have included household income instead of individual incomes. This adjusts for the 2 income household which was scarce in 1968, but common today. Also please consider the average number of residents per household are fewer. We are working harder for bigger emptier homes. I hope everyone has fuller lives.
here is a horrific data table. And for those who like to do there own homework, here is the updated Download realestate1.1xls.xls spreadsheet. If have made a mistake i.e. non-inflation adjusted figures etc. help me out here.