Real estate is still insanely overpriced in many areas, but falling fast - good or bad?

[El Pinko]

Real estate is so expensive anywhere in California and other areas, that not even a middle-class income is enough to buy (at a reasonable monthly payment).

That being the case, it's not surprising that some people bought houses that were far more expensive than they could afford with liar loans and low teaser rates.

Others (like myself) accepted the reality that they could not afford to buy at bubble-bloated prices and made do renting (since renting is MUCH cheaper in these areas).



The long-term trend in every metro area of the US was from 1900 to 1997 was 3X median household income (4X in extra-desirable areas).

The only thing making prices high since then was easy credit and speculation (greed).




Approximately 1/3 of the US population lives in bubble areas. What would you like to see happen?

[mrJJ]

1. Subprime for dummies MS powerpoint req

Subprime for dummies MS powerpoint req
http://marktomarket.typepad.com/marktomarket/files/financial_crisis_for_dummies.pps

[PSPS]

2. Your assumption is wrong in the choices

The actual traditional ratio is for housing in an area to be 2 - 3 times the median income for an area, not 3 - 4 times. The same ratio holds for "extra-desirable" areas because those houses sell to people who make more money.

[El Pinko]

4. I have read many times that it was 3-4 x...

but regardless of which is true, the point still stands, prices are still way above the long-term trend line.

The median household income in California, for example is about $54K.

The median house price in California in 2006 reached about $500K - ten times median income.

http://en.wikipedia.org/wiki/Median_household_income

It is now $350K - almost seven times the median income.

http://www.latimes.com/classified/realestate/news/la-fi-homes26-2008sep26,0,3170025.story?track=rss

Regardless what you think the trend is, I think we have a long ways to go before we get back to it.

And I also think that trying to prevent the correction will do more harm than good in the long run.

[McCamy Taylor]

3. California real estate is not normal. Houses should correct. However

they will always be higher in places where people want to live, like Hawaii and inside nice cities and in California.

Houses are to live in, not to make money from. If you have a good eye, collect art.

[El Pinko]

5. There has always been a premium to live there, as it should be.

I have lived in both San Diego and San Francisco, and I believe that the high quality of life and wonderful weather do make many areas more intrinsically valuable than say - Lousiana or whatever.

But the fact is that as recently as the early 1990's, house prices in California were below $200K - and incomes in that same period have only risen from a median $40k to a median $54 k.

Which means that the cost of buying has gone from 5 times the median income to more than seven times (and it was about ten times at the peak of the bubble).


California will never be "cheap", but I daresay it will be quite a bit cheaper than it is now, in the near future.

[harun]

6. Good poll. I think that looking at it just in terms of income may not

get the best result. Result in terms of policy, not poll result. For example, I think if regulations were put through that said to home builders they could go ahead and build all the homes 6x above income rates they want if they do the inverse as well. Where if the avg income of an area is 50k. Say for every house they build and price 6x (300k) above avg income they must build one at 2x. One could work out a table representing effective ratios (not exactly 6x to 2x). It would result in less home building but would at least make it so some affordable new homes get built.