[quote=kev374]The median home price in Orange County, California in May 1998 was $221,000, median income was $58,000.
Fast forward to today: Median home price $505,000 and the median income is $71,000.
I will let you look at the two pieces of data above and ask why the price to income was 3.8 in 1998 and why it is 7.1 today? I would like to hear opinions?
My view is that given the current state of the economy, with unemployment high, lower job stability, declining real incomes, higher commodity costs (fuel/food etc.) the sustainable ratio would be closer to 3.5 reflecting a median of around $250,000.
My belief is that a 7.1 ratio is only due to a speculative frenzy fueled by cheap money and investor zeal. These kinds of things are not sustainable long term.
Again, I would like to hear opinions as to why people think that a median price of 7.1 times income is now sustainable long term in an negative economic environment while in the past such a ratio has never been sustainable.
I am looking at solidly blue collar neighborhoods like Buena Park, California where asking prices for entry level single family homes, many of them 30+ year old homes, less than 2000 sqft, are north of $500,000. Are home prices north of half a million dollars in blue collar neighborhoods sustainable? If so, why? The current figures indicate Buena Park has a median income of $58,000 yet has a median home prices of almost 7.2X at $420,000. Realistic? Sustainable?[/quote]
Nope, not sustainable, but likely to last for as long as mortgages are so cheap. IMHO, the credit bubble is alive and well, and asset prices are being grossly distorted as a result.
