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In
order to most accurately determine prior market price cycles one must remove the effects of inflation and look at real historical prices. The past thirty years have seen four real price cycles and the beginning of a fifth in Merced. As the market is now in a downturn a point to consider is the differences of prior downturn cycles. One cycle involved marginal nominal price increases and falling real prices, while the other involved falling nominal and real prices. Market cycle time periods have varied from a market downturn of five years to the prior market growth cycle of nine years.
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|
Time
Period |
Real
Price History |
Real
Price Change |
Nominal
Price History |
Nominal
Price Change |
1979:Q2
- 1988:Q1 |
$143,400
- $127,600 |
-11.0% |
$52,600
- $73,600 |
40.0% |
1988:Q1
- 1990:Q4 |
$127,600
- $168,500 |
32.0% |
$73,600
- $109,900 |
49.3% |
1990:Q4
- 1997:Q2 |
$168,500
- $128,100 |
-24.0% |
$109,900
- $101,100 |
-8.1% |
1997:Q2
- 2006:Q1 |
$128,100
- $335,300 |
161.9% |
$101,100
- $328,000 |
224.6% |
2006:Q1
- 2006:Q4 |
$335,300
- $325,000 |
-3.1% |
$328,000
- $325,000 |
-0.9% |
The
mortgage-debt-to-income ratio is commonly viewed as the most accurate method of determining market cycles. The past thirty years have seen three cycles, all of which included large changes in home affordability. The peak in 1981 is an abnormality due to all time high mortgage rates. It does however act as the turning point of a nearly 18 year improvement in Merced home affordability. Due to this abnormality of the late 1970s and early 1980s, the median affordability ratio is skewed. Consequently, the fact that home affordability is well above the historical median generates great concern as it has reached a volatile level.
|
Time
Period |
Merced
Mortgage-Debt-to-Income Ratio |
Merced
Ratio Change |
National
Mortgage-Debt-to-Income Ratio |
National
Ratio Change |
1979:Q2
- 1981:Q4 |
29.1%
- 49.0% |
68.4% |
25.1%
- 39.2% |
56.4% |
1981:Q4
- 1998:Q4 |
49.0%
- 16.7% |
-65.9% |
39.2%
- 15.9% |
-59.5% |
1998:Q4
- 2006:Q2 |
16.7%
- 41.0% |
145.0% |
15.9%
- 23.5% |
48.0% |
2006:Q2
- 2006:Q4 |
41.0%
- 37.8% |
-7.8% |
23.5%
- 21.7% |
-7.5% |
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