Muted Pay Gains Can’t Drive Miami & Coral Gables Real Estate Prices Higher

posted on January 29th, 2010 filed under: Real Estate News

Today the federal Bureau of Labor Statistics released its quarterly Employment Cost Index, which showed that wages and salaries increased 0.5% in the 4th quarter of 2009, and have risen 1.5% in the past year.  (These are national data, but there is no reason to believe conditions are significantly different in Miami and Coral Gables.)

Why should you care?  Because over the long haul, real-estate prices rise in tandem with incomes, as the value of the currency is slowly and deliberately destroyed.  (Since the Federal Reserve was created in 1913, the dollar has lost 96% of its value.)  Rising real-estate prices in Miami and Coral Gables thus depend on rising incomes.  With incomes rising slowly, real-estate prices in Miami and Coral Gables are not likely to bounce furiously higher.  Time remains on the side of those who are patient and wait for the right home to come along.

Of course, it is possible for prices to rise faster than incomes for short periods of time.  The whole real-estate bubble in Miami and Coral Gables was a function of factors unrelated to incomes, like stupidly low interest rates, complete abandonment of lending standards, and a general orgy of fraud and speculation.  According to the National Association of Home Builders and Wells Fargo, the ratio of median home prices to median incomes expanded from 2.5:1 to over 6:1 in the Miami metro area, and from 3:1 to over 8:1 in the New York metro area.

But that sort of disconnect between prices and incomes always ends badly.  Miami has snapped back toward 3:1, leaving some room for additional price declines but not the trap door that existed before.  New York remains grossly overvalued at about 6.5:1, and is now the most overvalued, unaffordable U.S. real-estate market.

Interest rates are abnormally low again, but the other factors underlying the bubble cannot be expected to return anytime soon.  We’re back to basics.  Slowing rising incomes mean slowly rising real estate values in Miami and Coral Gables.

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posted by // This entry was posted on Friday, January 29th, 2010 at 8:34 am and is filed under Real Estate News. You can follow any responses to this entry through the RSS 2.0 feed.

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