I remember when the Euro traded for about $.90 USD in 2001 or 2002. Now it’s about $1.53 USD. Gold was much less as well. These are investments. They go up and down. Buying a house is an investment as well. They go up and down. There are fundemental reasons as well as emotional reasons that these investment move in price. Although one could argue that the cost of a house in the OC is now less than it was in 2000 (when valued in inflation adjusted dollars), using this as a marker for the “Ending of the Bubble Bursting” is premature given other factors, IMO.
A median house in SD County has historically cost about 7 times what the median income is when housing has been a relatively negative emotional purchase..i.e..3rd or 4th year of a RE down cycle. I think using this as a gauge is a more accurate measure of when the prices will stop dropping. This shows the level at which people are willing to buy even when the investment does not look that appealing. Of course other factors have an effect, like interest rates, availability of credit, etc…but this ratio seems to have a strong track record even when all other variables are considered.
In SD County the median price is still about 11 times the median income. So it’s still very high, historically speaking. And RE now has a very negative investment appeal. No matter how you measure inflation, which I personally think is vastly under reported, using historical ratio’s of income to prices will probably be a more accurate way to predict the bottom than calculating the effects of inflation on the USD.
