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Monday, March 6, 2017

US House Prices Have Climbed Upwards But So Have Incomes

In our last post, "The US Housing Bubble Has Been Fully Reflated," we discussed how US House Prices have entered bubblicious territory because because median US House Prices stood at 5.63 times median household income - two standard deviations away from the long-term average of 4.24 times median household income.  Based on what I remember of my statistics classes, the probability of this taking place is exceptionally low: only 2.5%. Since then, house prices have continued to increase:

In 2015, house prices, as evidenced by the S&P/Case-Shiller 20-City Composite Index, increased by 5.03%, but so have incomes. Real Median Household Incomes increased even faster in 2015, by 5.33% to reach $56,516 at the end of 2015:

As a result, median new home prices are now only 5.11 times median household incomes in 2015, slightly less than two standard deviations above the long-term average of 4.24 times. Prices are still elevated but no longer in true bubble territory.

Source: St. Louis FRED

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