By Deirdre Hughes, Hot Stock Minute
You and 5 million other Americans back to work
Federal Reserve Chair Janet Yellen this week said the Fed's current forecast projects the economy could be recovered and full employment restored within a little more than two years. By the Fed’s definition, “maximum employment” means an unemployment rate between 5.2% and 5.6%
Home prices 20% higher?
Applying Yellen’s use of the pre-recession peak as a benchmark for the housing market, prices are off about 20%. Housing prices peaked at the end of 2005 at an average of $254,000. At the end of last year, prices averaged $205,000, according to the National Association of Home Builders.
“We could get back to that level, but do we want to?” asked Yahoo Finance’s Lauren Lyster. “Houses were in a massive bubble and that’s what those prices reflect.”
The new "normal"
While housing prices remain well off their peak at the height of the bubble, there are other indications that the housing market is returning to what is considered “normal.” According to the NAHB, 59 out of 350 metro areas have “returned to or exceeded their last normal levels of economic and housing activity,” which were before 2007.
By another measure, a “normal” housing market means home values should be about three times a homeowner’s income. At the height of the housing bubble, home values ballooned to nearly five times homeowner income. According to NAHB, that level has returned to about three-times’ income levels.
How about a raise?
That is due more to housing prices coming down than incomes rising. Incomes have been stagnant or declining for more than a decade. Median U.S. income peaked in 1999 at $56,080 a year. Incomes came close to approaching that level in 2007, reaching $55,627. In 2012, the latest year available, median income adjusted for inflation was $51,017.
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