Whether
you’re a flipper of TV channels or a die-hard fan of one particular news source
(television, radio, internet, or some weird thing called a newspaper), you
can’t help but come across a story or twelve on a semi-regular basis about the
housing market and whether we’re on a “bubble”.
There are those
pundits who claim everything points toward the market being on a bubble and how
close we are to it bursting, and there’s an equal number who blow off the idea
like that’s the most ridiculous thing they’ve ever heard. What you don’t hear, though, is actual data
supporting their arguments concerning a “bubble” in the housing market because
it makes for a better story to watch people wring their hands and make
emotional pleas and/or flash artificially whitened and perfectly aligned teeth
at the camera and say these end-of-days kooks have it all wrong. Well, buckle up, kids! THIS is about to become your favorite news
source (at least for the next two or three minutes) because here’s some data to
let you decide what’s going on in the housing market –
taken from the Housing Finance Policy Center’s housing affordability index:
- In 2006, in the run-up to the ugliness of 2008-09, there was a $22,000 shortfall between what the median household income could afford and the median sales price of a home. In some parts of the country, that shortfall was an even greater chasm between what could be afforded and the price at which homes were selling.
- Today, the median household can afford a home that is $70,000 higher than the price of the median house sold.
For
the former, it doesn’t
take Einstein to figure out that promising
to spend money you don’t have at present along with the distinct possibility
that you won’t be getting annual
raises or increases to your income to make up that shortfall in the
near future is a surefire recipe for things
going
sideways
fairly quickly. Using
that same set of sub-Einstein analytical skills, it’s not hard to see the
makings of the bubble back in the day and why it eventually burst.
From
the latter, we can see that income today is staying ahead of the prices –
that could change, and there’s no guarantee that it won’t, but it’s pretty safe
to say it’s not going to change drastically in the next 5-6 months –
so the makings of a bubble, at present, are fairly absent.
I’m
not trying to make any specific forecasts or prognostications about the near
and/or distant future –
I’m just presenting you with the data, and my interpretation of the data,
that’s all. It’s up to you decide what
to do with it. Think of it this way: if
your child –
we’ll call him Jack –
comes running into the living room where you’re holding a small cocktail party
and says, “Jimmy was blowing bubbles, and one of them popped right in Cathy’s
eye,” do you wring your hands and lose your cool or do you pat Jack on the head
and ask him to join his diminutive friends back outside? Well, it might all depend on whether the
source of the bubble was soap or chewing gum.
Having a little bit of data can make all the difference, right?
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