No Sign Yet Of A Housing Bubble
Econintersect LLC | Jun 09, 2013 02:11AM ET
I hear a lot about bubbles. I see potential bubbles in play, but let’s look at the data.
Indexed GDP (blue line), Home Price Index (pink line), Disposable Personal Income (red line), and S&P Stock Price (green line) – all data in current dollars, no inflation adjustments
The only bubble one can see building in the above graph is the stock market – if one accepts that the Wall Street measure of economic growth – GDP – would be a control or baseline for stock market valuation. And housing prices are well under the growth of GDP – but housing is a Main Street sector, while GDP is a Wall Street measure. GDP should not be used as a control for housing prices.
What should be a control is family income – specifically median family income. A house price must be affordable for the family. But median data is not maintained in real time – which forces use of per capita data (red line in below graph) which logically overstates a median (as it is distorted by the 1% who earn 20%+ of the personal income).
The above graphic uses Owner’s Equivalent of Rent (blue line) – the amount of rent that could be paid to substitute a currently owned house for an equivalent rental property. Using the Housing Price Index of the US (pink line) and comparing it with rent equivalents (blue line) – it seems housing prices and rents correlate – no bubble is evidenced here.
Another kick at this can – substituting hourly pay (red line) for per capita income yields a similar outcome – no sign yet of a housing bubble (see graph below).
A final kick at this can – comparing the USA situation with other Click here to view the scorecard table below with active hyperlinks
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