Tuesday, February 26, 2008

California Bubble Prices

I thought this was an interesting article. There's always a lot of debate about affordability, particularly in California. If you believe the plot (left), California clearly has a history of a higher median price for per capita income. But the recent bubble has taken the factor into ridiculous levels. At a minimum, it's not unreasonable to expect the data to return to 6x levels. If the economy goes into serious distress, who knows how low it could go. Time will tell.

2008-02-15: Homes in Bubble Regions Remain Wildly Overvalued

But the really bad news is that, even after a year of misery and falling prices, homes in many of these regions still aren't cheap. They remain wildly overvalued compared to average personal incomes.

There is a strong long-term correlation between the two figures. And in many regions, house prices would still have to fall a very long way to get back into line. Just to get down to seven times incomes, prices would have to fall 37% tomorrow.

How far? Try around a third in Florida and Arizona -- and closer to 40% in California.

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