While it seems we are close to historical norms in price-to-rent and price-to-income ratios, I have some doubts that this tells the right story.

Does the reported average or median income take into consideration all the people making $0? i.e.
if 90 people are making $50K and 10 are making $0, do they report an average of $45K or $50K. Do they average in the “0” values or do they just take the average salary of the people who are working? Hmmmm.

Secondly, are we really at historical norms with unemployment as high as it is ? I mean – we may be at an average price/income ratio, but these are not average times. The last time unemployment was this high, what was the price/income ratio or price/rent ratio ?

Would be nice to see a scatter-plot of local unemployment vs. price/rent ratio to see if we are in the ballpark.

To me, this suggests prices are higher than they “should” be. I have to point to bank behavior as the cause. The bailout and stimulus money has completely shielded the housing market from the unemployment situation and has completely shielded banks from their own stupid decisions and has given owners who would otherwise have to bail a chance to hold on. Couple this with municipal borrowing to prop up wages of city workers and you have yourself a housing-market-life-support-system.

One thing to keep in mind – even if pain is not felt in the higher demographic areas, eventually the substitution effect will bring pain from the lower-end to the higher-end markets

But given the low-end is still being bailed out, it will be a long time before it is seen in sdr’s neighborhood.

Another recession should make these prices move a bit, but the bailout money has a significant dampening effect on dramatic movements in price.