Income vs. Home Prices Chart Using City-Data (Nashua, Amherst: foreclosure, mortgage)

[BF66389]

Was doing some calculations for work today and someone sent me an article about home owners in CA being the poster-child for over-leveraging credit. So I decided to pull some information off of City-Data and the report of home value drops for 4th quarter '08 by metro area to do a little comparison.

Here's my chart of 3 towns I know a bit about in NH vs. one of the "poster children" towns in CA (lost 37%+ in value), vs one of the towns specifcally grouped in with NH (13% loss in value):

EDIT: My table didn't post; so what this shows is the town, then 2000 income/home price then ratio of home price/income...followed by the 2007 data


Nashua
51,969 132,200 2.54
64,161 272,000 4.24

Hollis
92,847 259,900 2.80
117,688 543,584 4.62

Amherst
89,384 205,100 2.29
113,299 428,969 3.79

Oakland, CA
40,055 227,300 5.67
46,475 595,000 12.80

Quincy, MA
47,121 181,500 3.85
55,113 366,100 6.64

I did some other towns but lost the spreadsheet when my computer locked up; but I think the results are obvious- the less the homeowners leveraged themselves- the less home values have crashed. The only place this isn't the case is in areas that are mostly speculated second homes (Florida, etc); there the ratios are lower...but its important to note most of the "owners" also had two homes so the ratios are a false indicator. There is also a belief that a more sane market is when median home values are approximately equal to 3 or 4 times the median income.

All in all, this bodes fairly well for NH property values when compared to other areas of the nation. Obviously factors like reduced median income in towns due to job losses are also a driver (and leveraging for other assets like cars, etc). But I thought this was interesting.

I am also very interested in running this comparison again with MEAN data since only the MEDIAN data was readily available. That comparison will better allow me to see what's going on and where the outliers fall.

[GregW]

Thank you for your work. I am looking forward to the mean data analysis. The current foreclosure rate is, IMHO, analogous to a stock market margin call. This tends to weed out the speculators (gamblers) and their financiers.
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[fishnfool]

All one has to do to understand why we're in this crisis is look at the increase in 2000 to 2007 incomes (just under 10%) to the increase in home value (approaching 50% increase).

Until home prices drop and realign themselves with actual income I just don't see the housing markets rebounding.

My wife and I have a combined income much higher than the median income for NH and we would kill ourselves to try and afford a decent home here (granted we have to live near the coast due to her job). If we were slaves to our mortgage we would have a great house, but we both decided that having a "life" was more important than being a homeowner right now.

[MonkeyButler7000]

I have read that the ideal ratio is 2.5. Is this true? If so, it is easy to see why things crashed.

[BF66389]

Originally Posted by MonkeyButler7000

I have read that the ideal ratio is 2.5. Is this true? If so, it is easy to see why things crashed.

I think it depends, barring lavish expenditures on luxury goods/services & tax rates- two similar size/geographically located families will have several expenses that are roughly fixed compared to eachother. As a result- the relationship between funding available to pay for a home (and live within their means) does not increase in a linear fashion with income.

IE- If I make $200k for my family of 4, but I drive a used Toyota, usually eat dinner at home, take a moderate vacation, use the same moderate daycare as you (fixed costs comparatively)...and you make $50k. You might only be able to afford a $125k home (2.5x); whereas I can afford an 800k (4x) home because of my ability to (responsibly) allocate my extra discretionary income to my priority- the home.

But again, this relies on the fact that regardless of how low your income is- we still have some common needs. If the folks who make more go out and blow it by scaling up EVERYTHING accordingly (Mercedes vs. Toyota), luxury restaurants vs. Chilis; then it breaks down and becomes a linear relationship again. Likewise pre-existing debt or equity also play into this...

[seamusnh]

Looking at Amherst, a house that cost $205,100 in 2000 may have been worth $428,969 in 2007, but that must be lower now. My guess is that the houses are 15% off that peak, or $364,000. That would reduce the ratio from 3.79 to 3.21...