I saw a remarkable graph two weeks ago and managed to find the data sets and confirm the results.
The Case-Shiller series of indices track the change in price of housing throughout the United States. It is a remarkable set of series that includes the largest 10 cities, largest 20 cities, individual cities, regions, and an average of the entire country. For this analysis, I grabbed the entire country series.
I wanted to compare it to the median family income. At first glance, I thought the original graph was showing median wages, but that was not correct and wouldn’t generate a correct comparison. While individuals may buy houses, it is a family that lives in one. A family can also be defined as an individual. The series on median family income is produced by the Census Bureau which gives me confidence that I am using the term family properly for this data comparison.
I am certain everyone is aware of the bubble that occurred in house prices between 2000 and 2008 and the leading cause of the recession was the collapse in house prices from the destruction of the sub-prime securities market. What everyone may not be aware of is how closely tied the price of housing was to median family income prior to 2000.
I gathered data from 1990 through November 2013 (the most recent Case-Shiller reported date). Between January 1990 and December 1999, the correlation between the two series was 0.7727. That is reasonably high. Contrast that with the period of January 2000 through November 2013 where the correlation was 0.4127.
The point of the original graph was the recent increase in the Case-Shiller index is far outpacing the median income again. The chart is below. There are no conclusions to be drawn, but it might be something to watch. I’ll keep the chart on this blog since the median family income number is updated only once per year and the Case-Shiller has a significant lag.