Historically I believe RE prices have exceeded local inflation by about 1% but you also have to take into account income which has pretty much stagnated and even in some cases receded in the past 5 yrs.
Income is the only fundamental that drives demand. People keep harping on the fact that prices are high because everyone “wants” to live in SoCal etc. which may be true but everyone wants a Ferrari as well so are Ferraris selling in the thousands? I think not. The median household income in SoCal is around $60ish K. That doesn’t support a very high price point, perhaps $200k or so.
Infact per 2005 Census estimates only 25% of SoCal makes 100k or over in household income. My guess is that the vast majority of that 25% are older and already homeowners are not creating any new demand for homes…which means that the demand at this price point in the absence of exotic financing schemes is close to nil!! We are seeing this lack of demand in the market right now which will help adjust prices to demand driven by fundamentals.
