“He said that prices would not necessarily revert to the baseline ratio of price/income = 7, because of demand.”

Well, not exactly. I said that analysis using reversion to the mean on the house price to income ratio is not as appropriate as analyzing supply and demand, but such as it is with paraphrasing.

Demand curves are tricky, especially in consumer markets because perception comes into play with demand curves.

Right now, perception is “Wait until prices fall.” So, if prices fall a little, the demand may not change much. If they fall a “medium” amount (whatever that means), people will take notice but may not act. Eventually, the “waiters” will buy.

Further, due to the median price measurement, people perceive prices to be nearly dead even over the last year, not down at all.

Lastly, there are real estate agents out there twisting perception. The demand side of things is a complicated mess right now. The mix of buyer types is quite varied.

It is undeniable, however that as prices go lower, houses are more affordable. And there are people waiting. That is the key to my comment. There are people and probably big investment dollars waiting …