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Pop Quiz Time: Fundamentals or Speculation?

Here’s a pop quiz for you. Take a look at the following two tables and try to determine which one more closely resembles a market based on fundamentals, and which one represents a market based on speculation.

Median Household Income vs. Average Rent: 2000-2005

Year Med. Income % Chg Avg. Rent % Chg
2000 $53,200 +3.9% $784 +3.9%
2001 $55,900 +5.1% $826 +5.3%
2002 $58,000 +3.8% $838 +1.5%
2003 $59,200 +2.1% $821 -2.0%
2004 $60,400 +2.0% $803 -2.3%
2005 $60,700 +0.5% $810 +0.9%
Total 2000-2005 +14.1%   +3.3%
Average Yearly +2.67%   +0.65%

Median Household Income vs. Median Home Price: 2000-2005

Year Med. Income % Chg Med. Home % Chg
2000 $53,200 3.9% $225,000 4.9%
2001 $55,900 5.1% $235,000 4.4%
2002 $58,000 3.8% $249,000 6.0%
2003 $59,200 2.1% $265,000 6.4%
2004 $60,400 2.0% $289,950 9.4%
2005 $60,700 0.5% $332,000 14.5%
Total 2000-2005 +14.1%   +47.6%
Average Yearly +2.67%   +8.09%

These figures come from the most recent King County Benchmarks Report, released yesterday. Both the Times and the P-I have their usual un-insightful blabs about it, if you’re into that sort of thing.

If the implication of these numbers is not obvious to you, you are either:

  • willfully ignorant of basic economics
  • incapable of comprehending basic math
  • in the real estate business
  • all of the above

How anyone can argue (with a straight face) that home prices are based on “fundamentals” when those very same “fundamentals” have somehow allowed rents to climb slower than incomes is beyond me.

(King County Budget Office, Affordable Housing 2006, 01.2007)
(Sharon Pian Chan, Seattle Times, 02.01.2007)
(Aubrey Cohen, Seattle P-I, 02.01.2007)

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.