American house prices: realty check
FIVE years after the house price crash that nearly took down an entire financial system, America’s property market appears to be in rude health: prices have appreciated by 17% over the past three years. But that statistic hides vast differences in housing markets across America. In San Francisco, thanks to a tech boom and constrained supply, prices have increased by 50% over the same period, and have now surpassed their 2005 peak. While prices in Las Vegas—where housing was built like billy-o leading up to the crash—have increased by the same amount, they still remain 40% below their peak.
As a gauge of frothiness, The Economist has compared prices against two affordability metrics: income and rents. On this basis, affordability looks stretched in San Francisco with prices at nine times household income and nearly 20 times annual rents. This compares to a long-run city average of six times income, and a national average of 3.3 for income and 11 for rents. By comparison, housing looks particularly cheap in Detroit and Pittsburgh where prices are just over two-times median household income. Over time prices should adjust (or equivalently incomes and rents will rise) to return affordability ratios to their long-run averages. But gauges of affordability are affected by interest rates, which are at an all-time low, making housing artificially cheap to buy. As and when interest rates do normalise, prices will face pressure to return towards their long-run relationship with income and rents. But even if they do stand firm, who wouldn’t prefer a small slice of San Franciscan silicon over a rusting lump of Pittsburgh steel?
This interactive chart allows readers to compare the ups and downs of housing in America’s biggest cities as tracked by Zillow, a property website, across five measures:
• House-price index: rebased to 100 at a selected date and in nominal terms
• Prices in real terms: prices in $'000 at 2015 prices (deflated by CPI),
• Prices to income: the ratio of house prices to median household incomes
• Price to rent: the ratio of house prices to annual private-sector rents
• Percentage change: shows the change in inflation-adjusted prices between two selected dates