A slow national housing market may be driven in part by a gap between home prices and owners’ incomes, according to census data released this week. Local experts said those same factors are in play in Baltimore.

“This is predictable,” said Anirban Base, president and chief executive officer of the Sage Policy Group. “We went though a period where home price and monthly mortgage payments rose more quickly then incomes. There has to then be some period where incomes rise faster than those. We’re in that period now.”

An Associated Press analysis released Wednesday of census data showed a widening gap since 1990 between incomes and home prices in most of the nation’s 500 largest cities. Nationally, the median household income grew by about 60 percent from 1990 to 2006, roughly matching inflation, but the median home value more than doubled, to $185,200.

In Baltimore, median household incomes rose from $24,045 in 1990 to $36,031 in 2006 in the Baltimore City-Towson area. But median home prices in that same area went from $54,700 to $126,400, according to census data.

This story continues below
Advertisement

“What does that tell you? We’ve been going through a housing bubble. Let’s not be afraid to use the ‘b’ word here,” said Stephen Walters, professor of economics at Loyola College. “Despite the fact home prices were rising faster, we kept throwing more money at real estate because of lax monetary policy that made credit artificially cheap. We weren’t properly valuing risk.”

The supply end of the supply-and-demand chain also pushed housing prices higher, according to Pete Kyle, professor of finance at University of Maryland.

“What makes it so obvious that what we had was a bubble, in many markets where it’s easy to build, they’ve gotten a huge supply response, and the supply is bringing the price down,” he said.

Basu said a more important imbalance existed between monthly mortgage payment rates and incomes. The hotter housing market was driven in part by those easier lending rules and homebuyers’ fear of getting left behind and missing high appreciation values. But those buyers have been hit hard by resets in adjustable-rate mortgages, he said.

“This is the sword of Damocles hanging over the market,” Basu said. “The resets, and how consumers will deal with increasingly strained budgets. They were already tight before that, and the reset takes them over the edge.”

The Associated Press contributed to this story.

acahall@baltimoreexaminer.com