Need I point out that in San Diego during the early 80’s the average home price reflected 3 to 4 times annual income? So yes, when rates went up, prices stagnated rather than declined. Stagnation during inflation has the net affect of decreasing the REAL price.
Now, in North Park for example, the average house is anywhere between 7 and 10 times average wages.
It all seems pretty simple, never before have we had housing prices so out of whack. What happened in the past cannot be a predictor of the future.
Pretty simple if you ask me, interest rates will have a far far more drasitic effect compared to any other time. [/quote]
Depends on the area, of course – some places have felt significantly less pain than others, but, at least according to research done on this site by Rich (Mr. Pigg himself), prices are no longer fundamentally out of alignment. See here:
and you’ll note on the first chart that the Case Shiller median divided by per capita income is now about where it was in ’84 – well into the decline curve and fairly close to the historical bottoms.
BTW, median prices have never been as low as 3-4x individual incomes in San Diego – about the lowest they get is about 6.5x individual, or about 4x household income. There really is a “sunshine tax”, and it’s pretty well historically documented.
