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Bill Freehling is a business writer for The Free Lance-Star and Fredericksburg.com. This blog is on Fredericksburg-area business. Send an e-mail to Bill Freehling.
Breaking down February’s housing prices
Fredericksburg-area housing prices look fairly cheap, according to two different metrics economists commonly use.
The first is comparing prices with incomes. Median housing prices have traditionally been at about three times median household incomes. If the ratio is higher than that, prices are historically overvalued. The reverse is true if the ratio is lower than three. Below is the breakdown for the Fredericksburg area based on February median housing prices. The income data are from the 2010 U.S. Census. The city’s ratio is likely skewed because the housing stock is so small and diverse.
|Locality||Median household income||Median sales price||Ratio|
Another method is to compare housing prices with rental prices. Economists say homes have historically sold at about 15 times gross annual rents. Again here, if the ratio is below 15 times that means the cost of renting is historically high compared with buying. The reverse is true if the ratio is higher than 15. Here is a chart showing the average rental costs for homes on the Multiple Listing Service over the past year, as well as the average housing sales prices for February (we’re using average prices here instead of median so it’s apples to apples):
|Locality||Average monthly rent||Annualized||Average sales price||Ratio|