Robert David Sullivan and Rachel Deyette Werkema of Commonwealth Magazine have a short piece in the Globe’s Ideas section giving graphic representation to the increasing unaffordability of Massachusetts housing. The following charts show the multiple of MA median income of the average house purchase price in the Commonwealth’s communities.
1999
2002
(source: Boston Globe, 4/9/04)
The median to average is a bit of an apples to oranges comparison, but presumably the median and average house costs are relatively close (prices do tend to cluster more than incomes) and in any case the difference between 1999 and 2002 shows the trajectory we’re facing. This change covers three years alone and the trend is continuing as purchase prices continue to rise. As Sullivan and Werkema note, “the zone of communities whose homes are beyond the reach of all but the most affluent families has expanded with astonishing speed, spreading north and south to absorb historically middle-class towns such as Burlington and Canton. If this trend continues, it raises troubling questions about the future of homeownership for the middle class.”
We might also wonder if the trend is further evidence of a housing bubble. The authors point out that “many consumer finance organizations and real estate associations use a formula of 2.5 times household income as a rule of thumb for affordability”, yet their maps show a trend not only toward general unaffordability but collective tendency to buy beyond an affordable price with the expectation of ever increasing equity. Along with the price-to-rent ratio, the price-to-income ratio is one of the main indicators of a housing bubble. And in Massachusetts it’s hovering around 6 times income.
It’s important to stress that a housing bubble will not likely play out in the way that a securities bubble does. They both may burst, but in the latter individual purchasers are the ones most burned (even if the Stock Market Crash of 1929 was exacerbated by margin calls and mutual fund firms). Home owners on the other hand will still have a home with every bit the same use value as before, even if their equity shrinks in the short, even medium, term. The loss will be both larger-scale and more diffuse. That doesn’t mean we shouldn’t be concerned, however.
[Update: the authors inform me that median housing prices were used. The comparison, in fact, is apples to apples.]
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