Two other metrics you can use: historical HAI (housing affordability index) and per capita income/median housing price.
The latter dropped to 7 after the last two housing busts. The Chamber of Commerce predicts 2006 per capita income is $40,661. With 2% annual increase, in 3 years we would have per capita income of $43,149, and median house prices should be $302K. BTW, that Chamber report is awesome! They talk about the lack of good jobs, reliance on real estate, and risks of exotic loans. Check out the link.
How is HAI computed? CAR acknowledges its weaknesses, but says it measures the health of housing. From their website:
“The current underlying assumptions for calculating the HAI are a 20 percent downpayment, current market rates for taxes and insurance, and a 30 percent qualifying ratio.”
Before the last RE boom started, HAI was 33. To get back to 33, we need homes to fall to a price that 33% of the population can afford with 20% down, at current interest rates, paying no more than 30% of income. I will leave the calculation up to you math whizzes.
What should be the median price, based on a reversion to the mean in 2009, if HAI = 33, and median income = $43K?
