Posts Tagged ‘Robert Shiller’

Richard Florida
by Richard Florida
Mon May 25th 2009 at 1:00pm UTC

Bubble Cities

Monday, May 25th, 2009

Map by Scott Pennington, Martin Prosperity Institute

This map charts the housing-to-wage ratios for U.S. metropolitan areas in 2006, the height of the bubble. It differs from the more commonly used housing price-to-income ratio. Historically, housing prices have been about three times income, but by 2006 housing prices had soared to a high more than five times incomes. In Irvine, California, the housing price-to-income ratio soared to 8.6 by 2006.

The housing price-to-wage ratio may provide a better gauge of housing bubbles. Income is a broad measure that includes wealth from stocks and bonds, interests, rents, and government transfers and other sources. Wages constitute a more appropriate gauge of a region’s underlying productivity, accounting for remuneration for work actually performed.

Forget ratios like four or even eight. Six regions – all in California – posted ratios of 15 of greater: Salinas, Santa Cruz, Santa Barbara, Oxnard-Thousand Oaks, Napa, and San Luis Obispo. Another 12 metros had ratios above 10 – L.A., San Francisco, San Jose, San Diego, and Riverside, California, as well as Honolulu, Hawaii, and Naples, Florida.

The housing-to-wage ratio also generates a number of surprises. Greater New York’s ratio (9.4) was slightly higher than Las Vegas (9), and Greater DC..’s (8.7) slightly bested Miami (8.4). Boston (8.1) and Seattle (7.6) topped Phoenix (7.2). Chicago’s (5.9) was higher than Tampa (5.6) or Myrtle Beach (5.5).

What regions seem to have avoided the bubble? The cream of the crop on the housing-to-wage ratio are Dallas (3.5), Houston (3.2), Pittsburgh (3), and Buffalo (2.8).