Wednesday, January 10, 2007

Another dumb study and dumb article

This is one of the dumber ones I've seen in a while.

U.S. home prices may have dipped over the past year, but many American workers would still struggle to afford a median-priced home in major cities, a new study said on Wednesday.

The key words here are "median-priced." If you think back to your school days, you'll remember that you calculate the median by laying all of the numbers of a sample out in a line from lowest to highest. The number that falls directly in the center is the median. Now let's look at how people tend to buy houses. They tend to buy the most house that they can afford within their budget at that time, and some even buy more house than they can really afford. So if you assume that most home owners buy a house that is within +/- 10% of the top of what they can afford, and most non-homeowners and half the sample of homeowners fall below the median, then by definition most people cannot afford a median-priced house. And guess what? That will probably never change. The reason that will never change is because the price spread for houses would have to become very narrow and a large majority of people would need to become homeowners for the median to fall within reach of those below it.

This article is trying to seed the economic storm clouds, and rather stupidly at that. The fact remains home ownership is near or at all-time highs. It takes a pretty healthy economic situation for that to happen

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