I think it’s a good question, and the basic answer, as others point out, are rent/price ratios, price/income ratios, and payment/income ratios. Look at all of them.
When looking at payment/income – don’t compare the payment on a 20% down fixed loan in 2001 to the payment on a zero-down adjustable loan in 2005. Compare apples-to-apples in different years to see how the fundamentals ceased to support the price.
We always have and always will pay a premium for weather here. It is an underlying fundamental to support higher prices in So Cal than in other parts of the country.
However, as Rich pointed out many, many times, the weather didn’t suddenly improve here between 2000 and 2004. Thus, the premium had no fundamental reason to increase as it did.
Weather was simply fuel to the speculative ferver.
