Income/House Price Ratio
Wednesday, July 16th, 2008About three weeks ago, I was walking through TriBeCa, when for no particular reason, it hit me that everything was just…expensive. From $25 dinners to million-plus housing, I got the sense that the people that lived there must have a lot of money, the way they seemed willing to throw it around.
The funny part is, they don’t. This article by Forbes gives some statistics on ZIP code 10013, also known as the “Triangle Below Canal” (TriBeCa). Even with a median house price of $1.875 million, the median income is only $49,314.
Something is very out of whack with this scenario. Mortgage payments with 20% down on a house valued at $1.875 million would be around 9,000/month, more than double the median income.
With income/house price ratios like these, it’s hard to see how the “mortgage crisis” didn’t come sooner. Are these people all perpetual renters in an area with an insanely low rental yield? Maybe a few Swiss bank accounts are at work? I wonder, is there any literature exploring the correlation between median house price/income versus house price volatility? With ratios getting into 2.18:1, I can’t understand how the valuations stay as high as they do in TriBeCa.