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House Prices to National Average Wage Index
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House Prices to National Average Wage Index

New Data for 2021 Wages Released This Morning

CalculatedRisk by Bill McBride
Oct 13, 2022
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House Prices to National Average Wage Index
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One of the metrics we'd like to follow is a ratio of house prices to incomes. Unfortunately, most income data is released with a significantly lag, and there are always questions about which income data to use (the average total income is skewed by the income of a few people).

And for key measures of house prices - like Case-Shiller - we have indexes, not actually prices. But we can construct a ratio of the house price indexes to some measure of income.

Previously I graphed house prices to median income. For the following graph I decided to look at house prices and the National Average Wage Index released this morning for 2021 from Social Security.

The National Average Wage Index increased to $60,575.07 in 2021, up 8.89% from $55,628.60 in 2020. This was the largest percentage increase in wages since 1981 - another reason to compare the current housing cycle to the 1978 to 1982 period (not the housing bubble and bust).

This graph shows the ratio of the Case-Shiller National house price index divided by the National Average Wage Index (the Wage index is first divided by 1000). This uses the annual average National Case-Shiller index since 1976 and an estimate for 2022. Note: The national wage index for 2022 is estimated using the average increase over the last three years.

As of 2022, house prices were well above the median historical ratio - and at the level of the bubble peak - even though wages increased sharply in 2021. This suggests house prices are too high based on fundamentals, and I expect house prices to spend 7 years in purgatory.

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