Let me ask YOU – why is the speculative sentiment that prices will keep rising now any different from 2000-2006? At that time people like you were also saying the same exact thing – that prices will keep rising ad infinitum. People like you were proved very wrong in the last bust, why should this time be any different?[/quote]
This wasn’t directed at me, but there is a big difference.
In 2005/2006 the Price to income ratio in San Diego was at an all-time high of about 14. ( C-S price divided by per capita income).
As of 2011 (Last time Rich updated the chart) that ratio was at an all-time low. Today it is maybe 10-15 % above those all time lows, but below historical norms.
The primary lesson that made Piggington was looking at those fundamental indicators :
– House price to rent ratio
– Monthly mortgage payment to rent ratio
– Mortgage payment as percentage of income
– Price to Income
These are what really matter. It is dangerous to assume that recent price appreciation is either indicative of future increases or indicative of a speculative bubble without looking at the underlying fundamentals, such as the ratios listed above.
