http://www.realestateradiousa.com/2010/07/27/home-prices-beginning-to-show-some-stabilization/ Mon, 09 Jan 2012 18:23:19 +0000 hourly 1 http://wordpress.org/?v=3.3.1 http://www.realestateradiousa.com/2010/07/27/home-prices-beginning-to-show-some-stabilization/comment-page-1/#comment-8832 Jim McCormack Thu, 29 Jul 2010 19:53:20 +0000 http://www.realestateradiousa.com/?p=13087#comment-8832 There is no way that home prices have reached a bottom. I analyzed the data in the NAR Home Affordability Index (HAI) from 1/1989 thru 5/2010 and found that the Median of the Ratio of Median Home Price to Family Income is 2.92 and the Average of the Ratio of Median Home Price to Family Income is 3.07. The lowest reading over this same period occurred in 12/1990 at 2.654. Therefore, it is safe to say that from a historical perspective the typical price of a median home should be about 3 times the median family income. The 5/2010 reading was just under 3 at 2.965. The problem is that we are not in a "typical" economic environment - we have record foreclosures that seem to persist and 10% unemployment. Given that the lowest reading of 2.654 occurred in 12/1990 and that our current economic conditions are far worse than 12/1990, it is logical to conclude that the ratio should be below 2.654. If the ratio declines to 2.5, home prices will decline by nearly 19%. If the ratio declines to 2.5 and family incomes decline by 5%, home prices will decline by nearly 25%. Given that personal incomes are declining and that a 2.5 ratio is probably a bit optimistic, I believe it is very feasible that home prices will decline by an additional 30%. There is no way that home prices have reached a bottom. I analyzed the data in the NAR Home Affordability Index (HAI) from 1/1989 thru 5/2010 and found that the Median of the Ratio of Median Home Price to Family Income is 2.92 and the Average of the Ratio of Median Home Price to Family Income is 3.07. The lowest reading over this same period occurred in 12/1990 at 2.654. Therefore, it is safe to say that from a historical perspective the typical price of a median home should be about 3 times the median family income. The 5/2010 reading was just under 3 at 2.965. The problem is that we are not in a “typical” economic environment – we have record foreclosures that seem to persist and 10% unemployment. Given that the lowest reading of 2.654 occurred in 12/1990 and that our current economic conditions are far worse than 12/1990, it is logical to conclude that the ratio should be below 2.654. If the ratio declines to 2.5, home prices will decline by nearly 19%. If the ratio declines to 2.5 and family incomes decline by 5%, home prices will decline by nearly 25%. Given that personal incomes are declining and that a 2.5 ratio is probably a bit optimistic, I believe it is very feasible that home prices will decline by an additional 30%.

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