>Income to House Price Ratio
With unemployment significantly higher than 2008 and near zero job growth could property values continue to decline?
Many people are trying to figure out where the housing market is going. and how home values are going to be affected. In a lot of the different assessments that have been made, comparisons have been to previous periods in an effort to determine trends.
I wanted to take a different approach. After looking at a few things, in my opinion, house prices need to come down about 33%, if not more. This number may vary from market to market.
https://www.bergenjerseyforeclosures.com/blog/info/entry/where_should_house_prices_really
For my analysis I turned to data provided by the US Census Bureau. I wanted to see how house prices related to household income.The reason for this is quite simple. The amount of house you can afford is closely tied to the amount you make. It is one of the most important factors lenders consider when qualifing borrowers for a loan. If you make X dollars a year, lenders have different formulas to determine they will lend you up to Y dollars for a home. This is a slight simplification as there are other factors involved such as your credit rating which impacts your interest rate which will affect how much you can borrow. But the underlying factor in your ability to repay is your income.
For the recommended price in (Bergen County) I used 3.46 times the median income. The reason I used this value is because from 1990-1999 this was the average home price to income ratio. In 2000 is when the ratio started to rise dramatically. At it’s peak in 2007 it was over 5.5. The 2008 value is about 90% of the 2007 value. Notice though, that the drop in home prices isn’t as sharp as the ratio drop. That indicates to me that prices haven’t adjusted inline with the ratio, but as you can see from 2000 up, prices did increase inline with the ratio. As lenders tighten up and the ratio comes back down to the 3-4 range, we should see an appropriate drop in house prices.
https://www.bergenjerseyforeclosures.com/blog/info/entry/where_should_house_prices_really
