On August 28, I addressed the question “How Big is the Housing Bubble”. Here’s another take based on Hourly Wages, Rent, and the CPI
https://hongkong.asiaxpat.com/Utility/GetImage.ashx?ImageID=eec56fd3-697c-4e5e-977b-c413f823cd1a&refreshStamp=0
Chart Notes
- Average hourly earnings are for production and nonsupervisory workers, not all workers. The data series for all workers does not go back far enough.
- The most recent Case-Shiller data is for May 2023. The other numbers are through July.
- Case-Shiller measure repeat sales of the same home over time. It is the most accurate measure because median and average prices do not factor amenities, the number of rooms, or quality of construction.
For at least 12 years, Case-Shiller, rent, average hourly earnings, and the CPI all rose together. Home prices then disconnected compared to everything else.
Based on Real Disposable Income, I calculated home prices were about 80 percent too high. Real means adjusted for inflation, and disposable means after tax. I used that methodology because for at least 12 years, home prices and real incomes rose together.
https://mishtalk.com/economics/another-look-at-the-question-how-big-is-the-us-housing-bubble/