A Look at Median Household Incomes

Adjusted for inflation, the Median Household Income has declined from the most recent peak reached almost a decade ago in 1999 of $49,244. Income declined to $47,323 in 2004 and has risen to $48,201 for 2006 (the most recent year with data). To make matters worse, it looks like the U.S. is entering another recession. Incomes in recessions have declined by an average of 4.5% during the last 5 recessions (counting the 1980 and 1981-82 recessions as one recession). A decline now would be especially tough as incomes have not recovered from the last recession in 2001.


Here is a chart comparing Median Household Incomes and the S & P 500 both adjusted for inflation over the last 40 years. Incomes have declined during each recession as has the stock market. Both often start declining at similar times; however the stock market starts the recovery earlier than incomes as investors anticipate the bottom.


This next chart compares Median Household Income and the Case Shiller Home Price Index both adjusted for inflation. Real Estate prices decline about the same time incomes do. However, Real Estate prices appear to rebound after incomes recover; real estate waits for incomes whereas the stock market is forward looking. The current housing bubble is a partly a result of real estate bucking the normal trend. Normally real estate prices have declined during recessions along with the declining income. However after the stock market bubble, the bubble transferred to real estate. Prices nearly doubled instead of declining with incomes.

Real Estate prices may not bottom out until Median Household Incomes start to rebound from the effects of the possible pending recession.

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