326. House market bubble: brief update

As usual on Sundays, science will be temporarily forgotten, because I would like to share many other things with you. This Sunday I am going to talk about again only global financial crisis.

You are probably eager to know how US house market is currently doing, since the it was the bubble burst on this sector of the global economy which initiated global crisis’ take-off. Kindly allow me to report – it is not doing very well, at least the bottom does not seem to be achieved yet… Below you’ll find four rather interesting plots, which, I think, allow to get correct overall impression of the situation on house market. Also, they do show that this crisis is indeed somewhat different from, say, .com bubble.

The first plot shows the number of newly bought houses per 1000 US tax payers:

As you see, currently a little bit more that 1 house/1000 people is bought – not just the absolute minimum for the last 46 years, but this minimum is almost 3 times lower than the average.

The next plot is ratio of the median price of a new house to average annual personal income in US.

In the past market has achieved attractor corresponding to the value of this ratio 6. Currently, it is is well below 6 – that is, Americans are not quite willing to buy new houses. It is also interesting to note that the upper bound of the ratio is about 8. This upper bound was rarely tested and even more rarely broken, that is,
not so many Americans were/are ready to pay more than 8 their annual incomes in order to to buy a house.

The third plot is average price of new house on the market corrected to inflation (we have recently learned that in order to plot meaningful quantities, inflation should be taken into account).

As you see, the nice robust trend held from 1963 – growth of the corrected price – is currently broken, and this is exactly, from my point of view, what shows how special is this situation compared to glorious dot com years and 1980s.

Finally, the average amount of time needed to sell a house (in months) is presented on the plot below.

The market seems to be a bit overfull right now (by the way, the situation here in Helsinki is similar, especially regarding the segment of expensive houses – many of them are on sale for several months now, as my weekly walks to Westend show ). So, what do you think – is it a good idea to buy new house in US nowadays?

Via ugfx.