The International Monetary Fund tracks the global real estate trends. Even though we think about real estate on a hyper-local level, an international perspective allows us to find areas of potential investment, and also shows us where Boston stands in the global economic arena.
The chart below is House Price-to-Income Ratio from several countries around the world. It shows how in some countries the residential real estate price growth has outpaced income growth. In Austria, Germany, United Kingdom, New Zealand and several others, housing prices have grown faster in recent years, with 2010 as the base line.
Some countries experience the opposite phenomena, home prices lagging behind the income growth. Greece, Netherlands and Korea are examples. People are making more money and not buying housing. Or the housing market is depreciating while incomes remain stable. Do these areas signify value while other countries show an overheated market?
In Boston, the price of housing has been a headline topic. From 2000 to 2012, the estimated median condo value went from $210,100 to $370,400. This is 76% jump in 12 years. Estimated median household income increased from $39,629 to $51,642 in the sale time. This is a 30% increase. Housing prices certainly outpaced income in Boston. (Data from City-Data.com, http://www.city-data.com/city/Boston-Massachusetts.html).
But much more interesting is how much more income is needed to buy a home? The percentage of estimated median household income to the estimated median condo value in Boston was 19% in 2000. By 2012, it was 14%. It went down. It’s a way of looking at affordability of housing. which has gone up in these years.
Even though home prices grew much faster than income, many buyers are finding value in Boston real estate, and higher prices can be absorbed.
Finding value for real estate investing is never as simple as looking at a chart. There is a reason for the income and housing price rations for every country. There is a reason Greek the real estate market has suffered this year. Whether or not it signifies value is your call.