Keeping track of housing and salary statistics is an essential task for economists.
Economists, bankers and real estate analysts often compare the changes in housing values and salaries to make informed decisions. These comparisons shed light on housing conditions, affordability statistics and growth or decline for housing demand.
Significance
These comparisons are important to make because an economy with rising house prices and flat or falling salaries is the first indicator of difficulties ahead for mortgage lenders and builders. The opposite is true when salaries rise faster than home values, signaling improving conditions for everyone involved in real estate, including buyers.
Data
When comparing the prices, good data are important. The U.S. Census Bureau has time series data for home values and salaries for metropolitan areas. The National Association of Realtors, or NAR, also provides reliable data for home values in specific cities and regions.
Applying Data
The data can be plotted on a chart using spreadsheets or graph paper. The chart would show the spread between home values and salaries for each year. Economists often calculate trend lines in charts like this to project future conditions.
Affordability Index
Another tool to use in evaluating market conditions is the Affordability Index that NAR provides in either .pdf or .xls formats. NAR uses a formula to calculate the index, and it is useful for evaluating the national trends in housing affordability.
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