Friday, July 11, 2014

House Prices to National Average Wage Index

by Bill McBride on 7/11/2014 02:55:00 PM

One of the metrics we'd like to follow is a ratio of house prices to incomes. Unfortunately most income data is released with a significantly lag, and there is always a question on what income data to use (the average total income is skewed by the income of a few people). 

And for key measures of house prices - like Case-Shiller and CoreLogic - we have indexes, not actually prices.

But we can construct a ratio of the house price indexes to some measure of income.

For this graph I decided to look at house prices and the National Average Wage Index from Social Security.

House Prices and Wages Click on graph for larger image.

This graph shows the ratio of house price indexes divided by the National Average Wage Index (the Wage index is first divided by 1000).

This uses the annual average CoreLogic index since 1976, and also the National Case-Shiller index since 1987.

As of 2013, house prices were just above the historical ratio.  Prices have increased further in 2014, but it appears house prices relative to incomes is still below the 1989 peak.

Going forward, I think it would be a positive if wages outpaced, or at least kept pace with house prices increases for a few years.

Notes: The national wage index for 2013 is estimated using the same increase as in 2012.

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