Thursday, February 23, 2012
I last posted a version of this chart in early January, citing it as evidence that the housing price bubble had definitely burst. With January data now available, here's an update. According to the National Association of Realtors, and adjusted for inflation, real median home prices of existing single-family homes are now back down to where they were in the mid-1970s. That's a monster correction. Prices could go lower—I'm not saying they won't—but I think investors and potential homebuyers should be looking at this as a sign that the next big thing to happen to the housing market is more likely to be significantly higher prices rather than significantly lower prices.
I received several critical comments about my post yesterday (More progress in the housing market) from readers who assert that data from the NAR is not to be trusted. That could well be true, and is probably good advice, but the same goes for just about any data source that is not based on real-time, liquid market prices (e.g., data on jobs, which can be skewed by faulty seasonal adjustment factors, and are based on surveys and estimates, and which are likely to be revised in the future). Regardless, while the NAR may have a bias to make home sales look stronger than they really are, I doubt that they have an interest in making home prices look weaker than they really are.
In any event, this chart of housing affordability (which shows that a family earning the median income has 195% of the income needed to purchase a median-price resale home using conventional financing) does reinforce my larger point, which is that housing likely has never been more affordable for the average family than it is today, thanks to the combination of sharply lower home prices, record-low mortgage rates, and rising real incomes. (The chart above also comes from the NAR, but affordability is so high that it's doubtful they can be completely fudging the numbers.) This is a time to be excited about buying, not fearful.
Posted by Scott Grannis at 10:55 AM