Median Housing Prices About to Fall Back Below $200K

Last December I wrote about how out of whack home prices had gotten versus incomes - the traditional range was 2.6-3.0x income for median home price. We tagged just under 4.0x at the height of the bubble in 2006. [Dec 6: What Should Median Home Prices be Today?]

Real estate is "local" so I find national statistics to be somewhat meaningless (average wage in New York City is a bit different than Kansis City, Missouri) but we've now dropped from $230K as the median price in July 2006 to just touching $200K as of this past quarter. This is a 13% national drop which is good news for affordability purposes, but we're still quite a ways way from my target of mid $160Ks which would put us back to around 3.2x income. But we're getting there fast despite the government interference.... free markets do work. They can just cause enormous pain as they do their bidding.

• Home prices fell in a record four out of five U.S. cities in the third quarter as low-cost foreclosures flooded the market and the U.S. housing market's decline spread throughout the country.
• Among 152 metropolitan areas included in the trade group's survey, 120 posted declines in median home sales prices compared with a year ago, the National Association of Realtors said Tuesday. Nationally, sales fell by almost 8 percent in the third quarter compared with the same period a year ago.
• Sales of foreclosures and other distressed properties made up around 40 percent of transactions in the quarter, bringing down the median price by 9 percent from a year ago to $200,500
• Sales fell in all but four states in the Realtors' group's report. The exceptions were Nevada, California, Arizona and Virginia, where buyers have been able to snap up foreclosed homes at a bargain. (amazing - lower prices bring in buyers - supply & demand still works - my Economics education was not all wasted)
  

Again we do have some wildcards that could make the figure drop below mid $160s such as potential for higher interest rates on mortgages (a 7% mortgage means you can afford less than at 5.5%) and the lack of employment. But if we shoot for $166K that's another 13% downside from here. That doesn't sound so bad but remember that's national, including some areas that never experienced any real bubble. Others?

• -39.4%: Riverside/San Bernadino, CA
• -36.8%: Sacramento, CA
• -36.0%: San Diego, CA
• -35.1%: Los Angeles, CA
• -31.0%: Cape-Coral/Ft. Myers, FL
• -28.4%: Las Vegas, NV
• -27.6%: Anaheim, CA
• -27.6%: Phoenix, AZ

Keep in mind some of the same pundits they KEEP trotting out on the national media outlets told us not to worry a year + ago - housing is only 4.5% of GDP and nowhere in history have home prices fallen nationally - so stop fussing about it. [Jan 24: They Said it Could Never Happen. Ever.] Those darn Black Swan events just keep popping up... but more importantly - let's listen to those folks who missed this entire mess, because if they've been wrong the whole way here, surely what they say now means a lot.

And let's not absolve our Congress who in the spring rushed out programs to help home owners - err not so much - basically paid off the corporations involved but sold it as homeowner help. [Apr 4: Congress is Rushing to Help Homeowners (NOT!)] Just keep this in mind as you watch them walk up people to testify and react in outrage - they should look in the mirror

[Oct 9: WSJ - Nearly 1 in 6 Homes Underwater]

[Sep 26: 15% of Americans Spend 50%+ of Income for House Payments]

[Aug 12: Bloomberg: One Third of New Home Buyers in Past 5 Years Now Underwater]

[Aug 4: WSJ - After the Bubble, Ghost Towns Across America]

[Jul 10: Foreclosure Activity Map]

[Apr 26: Bankrate.com - Average Joe Still Can't Afford a Home]

[Mar 25: WSJ - Wave of Foreclosures Drives Prices Lower, Lures Buyers]

[Mar 19: Alt A Mortgages Beginning to Breakdown]