The graph below of the Phoenix area monthly housing payment is taken from data from ASU Realty Studies.
The graph shows data through the third quarter of 2008. Because home prices and mortgage rates have fallen since then, I expect the monthly housing payment in the fourth quarter of 2008 will be below $1,000 per month, down from the peak of $1,675 a month in the second quarter of 2006.
The real estate bust is bad news for homeowners and lenders but it’s great news for home buyers.
HAPPY NEW YEAR!
{ 2 comments… read them below or add one }
Peter Fork 01.01.09 at 10:17 am
Nice data from ASU. Comparing median monthly income to median home price is a good way to compare prices in time.
Quarter: monthly income - house price, payment
Q4-1995: 3170$ - 87300$, payment = 650$ (20.5% of income)
Q4-2000: 3940$ - 129000$, payment = 890$ (22.6% of income)
Q4-2005: 4230$ - 260000$ , payment = 1560$ (36.9% of income)
Q3-2008: 4390$ - 175000$, payment = 1105$ (25.2% of income)
In the 1990s, median price was around 2.5 times the median income, and payments were around 21% of median monthly income. This is the historical trend. To have similar ratios, we need a median home price of 140000$ (that’s the price of Q1-2002). I wouldn’t call “correction overshoot” anything above that price.
It would be nice to compare these numbers within zip codes, because I suspect prices in Scottsdale are still very inflated (>50% overpriced), while some zip codes could be fairly priced (see my comment ). John, the 2002 prices on your zip codes graphs could be used as a rule of thumb for fair price.
Brian 01.01.09 at 12:00 pm
Happy New Year, John!!!
Great graph….but to comment on your post: most home buyers are also home sellers. So, while the decline in prices and the improvement in affordability might look very bullish, the further the prices fall, the harder it will be for home sellers to sell at a profit taking out enough equity to afford a 20% down payment on a new home.
So, this is not a slam dunk that lower monthly payments will spur a big rebound in home buying. It is more complicated and will also require a significant period of improved economy, higher pay and rebuilt savings / capital among potential home buyers.