The Relationship of Average Home Prices to Average Income

Nov 11, 2011 in Vital Information

Analysis Concerning Tampa Bay Real Estate

The chart below represents the relationship between average incomes and average home prices in the Tampa Bay area.  Historically, average home prices hovered at nearly three times average income. In other words, if average income was $33,000.00, the average home price was approximately $99,000.00.

Data sources include Bureau of Economic Analysis: U.S. Dept. of Commerce ("BEA"), Fed Stats, IRS.gov., and Zillow.

The raw data concerning average income shows $23,819.00 in 1996 and $37,406.00 for 2010, with steady growth throughout the period with the exception of a slight decline in 2009.  The raw data concerning average home prices in comparison to average incomes peaked near December 2005 at six times average income.  This was slightly more than double the average relationship of average home prices to average incomes.

Other Factors

Wind and Flood Insurance

Another factor that has permanently changed the face of Florida real estate is wind and flood insurance.  While real estate prices in the Tampa Bay area are approaching the historical range relative to average incomes [three times average income], it is unclear if the significant increase in the cost of insurance will serve to drive average home prices below the historical multiple of three relationship.

Low Interest Rates

While the simple fact that we are approaching the historical normal relationship between average incomes and average home prices is good news, another positive factor is low interest rates.  Interest rates have a huge impact on affordability.  Therefore, even if you are not purchasing a home at the “bottom” of the market, the low rate may result in paying far less over the life of a loan.

Unemployment

It is unclear from the statistical sources how unemployment rates in the Tampa Bay Area factored into the statistics presented here.

Thank You

While I crunched the numbers and created the chart, I would like to thank mortgage banker extraordinaire, Bob Saltzman of Academy Mortgage, (813) 787-7711, and Florida Foreclosure Property Expert Darrell Biggs of Realty Executives, (727) 420-7263 for their support, analysis and insights.  Uncertain markets demand seasoned professionals like Bob and Darrell.

The post The Relationship of Average Home Prices to Average Income appeared first on Castle Law Group.

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