Retail Sales Vs. Disposable Personal Income Per Capita

When people have a low disposable personal income (income after taxes) (green chart), they will not go out and buy things. Retail sales (blue chart) will therefore drop. You can also think of it like this. When taxes go up, people have less savings, less disposable income and can’t buy much as a result.

Correlation: Disposable Income Vs. Housing Prices: Is there a housing bubble?

Peter talked a lot about housing on the radio show of 21 March 2013. He said that house prices could drop a lot from here, but I don’t agree with that.

To see where housing prices will go we need to look at 3 fundamentals. The most important one is wages and income. If your monthly disposable income doesn’t match with the house you are buying, you will not be able to pay off your house. The second factor is mortgage rates. If you need to pay an ever increasing higher interest, you will have difficulties to pay off your house (at an adjustable rate mortgage). The last factor is savings. If you don’t have a pool of savings, you can’t make an adequate down payment for your house.

Let’s analyze these 3 fundamentals in this article.