Falling home prices said back in line with wages

[Hector]

[sniglet]

Unfortunately, wages are progressing downward quite precipitously. The offering wages for tech jobs has dropped SUBSTANTIALLY in just the last few months (several friends who are job hunting inform me of this).

Compensation is also being cut in many other ways (e.g. benefits, bonuses, etc).

In any event, house prices would have to come down a lot to reach historical income to purchase ratios. Tim did a piece on this recently, if I recall.

[deejayoh]

All you have to do is buy a national average house.

I bet "typical" = "median"

Take the median of all US wages - which is skewed up by the relatively high wages of people who live in populous, high cost states like NY and Calif - where home ownership is relatively low - and compare them to the median cost of homes, which is skewed down by places like the midwest where homes are cheap and home ownership is disproportionately high

voila, on a national basis homes are affordable.

great!

[Hector]

Exactly Deej, it's like he's averaging averages...

The guy is an economist and he works in realty...spin away!

Sniglet, I agree. I think we all have seen the memos from Microsoft temp agencies who are lowing wages 10% for existing, and even more for new assignments. How long can that last?

In the meantime we still have both MS and Boeing pending a few thousand more layoffs. Starbucks is silently laying-off as well, but at a staggered pace so as not to be forced to report it to the state.

Yun, I'm sure you're a smart guy, but seriously...Do you really believe what you are saying?

[gameboy]

As much as I hate to do it, you have to admit that Yun is absolutely correct.

As of Q4 of 2008, the national median housing price was about $180k while the national median income was about $50k. Which gives you housing price multiple of 3.6, which combined with a historically low mortgage rate of 5.5%, you can certainly make a case that the housing price is in-line with income.

But of course, that does not tell you the whole story...

First, US household income most likely peaked in 2008. If you have not noticed, we are in the midst of historical recession (The Great Recession). With GDP shrinking 6.5% in Q4 of 2008, we are probably looking at -2 to -4% GDP negative growth for 2009 and +1 to -2% for 2010 (I am decidedly more pessimistic than the Obama administration).

Based on economic contraction, we are probably looking at household income going back to 2004 to 2006 level over the next couple of years (if not more). That would mean the median household income will be about $44k. Apply 4X mortgage multiplier on that and you are looking at about $20k to $25k more decline in national median housing price.

So, right now is certainly NOT the time to buy!

However, things are decidedly worse for our local housing market.

As you all already know, we are trending later than the rest of the nation. The median income for King County is about $75k, while the median house price is still $400k which gives you a mutiple of 5.3.

Between the general economy and layoffs from all the large employers in the King County (Boeing, Starbucks, Microsoft), you are probably looking at 2009-2010 median income for King County at about $65k to $70k. Even if you take the higher number, if you apply 4X multiplier on the income, you are looking at $280k for the median house price in King County.

That means, based on Yu's comment, King County should expect another 30%+ drop in housing price.

See, you can trust Yu every now and then...

[EconE]

[marlon]

I do not think that husband and wife work to sustain the mortgage.

I think it is the opposite.

I believe that because most parents work, home prices and other items adjusted price accordingly.

[stannius]

Allow me to necro.
"We believe that the home prices have already fallen to what could be justifiable," HAHAHA

"The limit increase -- from $506,000 to $567,500 in the Seattle area -- means people can get larger loans without entering the private jumbo mortgage market." Except when the limits are allowed back to their previous level, your home becomes unsellable.

[Robroy]

[Robroy]

[Robroy]