The article focused on national figures. I’d assume that local differences still apply. Houses are dirt cheap in Dayton, OH, vs Seattle. Wage differences alone don’t come close to accounting for that difference.

I do have to admit it does seem almost unbelievable that home prices could REALLY return to 3 times of the average household income, but only because I believe we’ve all forgotten the true value of a dollar through an inflationary period.

I do believe prices will drop another 20% in Seattle before we are at the bottom, which will seem like a bargain to those that still have jobs, a good credit score, and liquidity. To those that don’t, it will still keep them out of the market and seemingly prices will still be too high.

Adjusted for inflation, the typical existing home was worth the same in 2000 as it was in 1950. But by 2006 it was worth 1.9 times more. Now it’s 1.45 times more. If we continue going back down to historic norms, there’s still a lot to wring out of today’s prices.

Home values 1950-2000 averaged about 3 times average household income. But in 2006, avg household income was $66K, but houses sold for $301K rather than about $200K.

Homes have traditionally sold for about 20 times what it would have cost to rent them for a year. But in 2006 it was 32 times.

Adjusted for inflation, home prices increased an average of 0.5% above inflation from 1950-2000, but 8.2% above inflaction from 2000-2006.

If you think we’re heading back to the historical norms of 1950-2000, then there’s a chunk of price dropping left to occur. If you think we’re near bottom now, then you’re breaking with 50 years of housing history.

From a basic supply and demand argument, the relaxation of lending rules in 2000-2006 really opened the pool of potential buyers. We’ve gone back towards pre-2000 rules, which narrows the pool a lot when inventory is especially high. (A significant rise in unemployment will further shrink the pool of able – and perhaps even willing – buyers.) On the other hand, total population continues to grow.

But…

The article mostly focuses on the national picture – local situations of course can vary a lot. A table in the article does show that Seattle had below average appreciation during the boom and (so far) much lower depreciation during the bust.

We will see. I’ve been far more right about how this scenario has played out than I have been wrong.

I was calling for oil to hit 50 dollars a barrel when Goldman Sachs was saying it was going to 200. We are in the midst of a deflationary spiral that the government is powerless to do anything about. Asset prices across the board will get massacred, and housing is one of them.

I feel like I am posting on Seattle Bubble.

I would argue that every year there is appreciation… and if you accounted for 3-5% a year since 2000, you should be getting close to the bottom…

But, I have no evidence to back that up, except to say that we seem to be finding the bottom… and the biggest fear in people is the fears you express… when the market starts to recover, though long and arduous, people will be thinking they should have bought…

Of course, that is the wonderful vision brought to you by Hindsight.

Prices will return to historical norms, aka median prices will be approximately 3-4 times that of median household wages.

The correction in King Co. has just begun, choose to ignore the inevitable at your own risk, the writing is clearly on the wall.

Government intervention is merely delaying the decline (ala Japan 90’s), we could see a decade in which housing does not make any substantial gains.

And yes the historical evidence is on my side.

Period.