eccen, think of it this way. Every year in this country, millions of people make choices about what city to live in. One of the big factors in those decisions is housing prices. In the long run, individuals will tend to go to the places that they perceive to be a better value for themselves. So if prices in one area become very high relative to how attractive that area is compared to the other choices throughout the country, people at the margins will leave (or choose not to come). Most people here in So-Cal know at least a couple families who have left or are thinking about leaving, and for whom high home prices are part of that decision.
Lets say that I get hired by a big company and they give me a choice to work in Boston or Seattle. I like Seattle a little better, but not much. If home prices are very similar in both cities I will probably choose Seattle. But if home prices are double in Seattle compared to Boston, that might nudge me over the line and I choose Boston. Because I am no longer in the Seattle market, this puts downward pressure on home prices in Seattle. It’s a contrived example, but believe me millions of families make compromises just like this every year.
In the long run it is relative desirability that determines relative prices between local markets. Simple but true.
I share your frustration cow_tipping. Few people understand the concept of substitute goods and realize that it applies to housing at a national level.
