Doofrat – you are half

[(former)FormerSanDiegan]

Doofrat – you are half right.

Be careful how you interpret this graph.

From the chart you can show that if prices re-trace to historical norms, that the PRICE to INCOME ratio will decrease by 50%. However, that does not mean that home prices decrease by 50%! Why ? The income part.

Example: The last cycle in this chart shows the plotted ratio going from about 9.5 down to about 6.75 from 1990 to 1997. This is a ~ 29% decline (9.5-6.75)/(9.5)in the ratio.

What did SD County median home prices do during the 1990 to 1997 period *

1990 Median = 183,210
1997 median = 185,210

* source : http://www.laalmanac.com/economy/ec37.htm

In fact the SD county median price peaked in 1991 at 187,510
and hit a bottom in 1994 at 176,010. Not a 29% decline !

Why ? Perhaps incomes increased by something like 23% or so over this 7-year period, and median prices dropped 6-7%.

I’d guess more in the 20% range if you account for wage increases.