I wish I had the reference, but I saw recently that the median income is actually *down* since 2000. And thats the fundamental re: housing prices.

Kewp: I’m glad you brought that up, as it illustrates the confusion between nominal incomes (measured in current dollars) and real incomes (adjusted for inflation). It is real incomes that probably shrunk since 2000, especially for less skilled workers.

Going back to the original post. Suppose the family who bough the $407 house in 2001 had a $65 income. Seven years later, the house could be $700K and the family’s income $112K. You’re going to say “no way! that’s too high a salary.” The point I’m trying to make, and that brsharma reiterated, is that with the current Fed policies, gasoline could be $4.50 or $6.00, a box of cereal sell for $10, and a gallon of milk sell for $9. Then the $112 income doesn’t sound too good, right?

Thi family is in fact worse off in 2008 than in 2001 b/c of inflation. In real terms their income is actually smaller. And because of the high inflation $700K doesn’t seem too high because the 2008 dollars are worth far less than in 2001.

Again, I don’t think we have reached the bottom in housing prices, but we’re very close to it. I wished housing would have corrected by only price drops. Prices have dropped, yes, but unfortunately, the Fed is achieving a huge chunk of the correction by debasing the dollar (by using inflation).