Prices are supply/demand driven. If no one wants houses, the prices will keep moving down. It’s this simple. Higher unemployment will grind down every market. The further from job markets, the far worse it will be. Homes in Temecula for $100K, why not? Lower rents, of course.
This is like contemplating the value of stock based on the last two years of its P/E. Not very useful if the new level of earnings is going to be so much lower that the price has to come a lot further down to match the acceptable ratio. Current rents and ratio’s are based on things that people tend to think are static, and they are not static. Will wages come down? I think we’re going to find out the hard way in the next couple of years. But if they do, that will cause all these ratio’s as to rent vs. buying and a home costing 4 times the HH income to be reset to a lower level. Now add the psychological pressure of possible job loss or need to relocate… See what unemployment does to the housing market. Just wait and see. I hope I’m wrong, but this is looking the mother of all melt-downs thus far. So I will now take off my tin foil hat. But this is not out of the realm of possible.
