There has been discussion about San Diego home prices reverting back to their ‘normal’ trend, but what is normal?  3x income?  4x income?  5x income?

The few times I’ve spoken up about the income question, I’ve said “Who cares about the median income for the county, what counts is the income of the potential buyers”.  Not everyone who lives in the county is looking to buy a home, and at this point they are most certainly a minority.

But comparing the trend is noteworthy, because over time there should be a statistical ‘norm’.

Harvard has charted the affordability index for each metro area, the comparison of median household income to median home price through 2006.  I used the city-data report of median household income ($61,793) to their median home price ($556,500) for 2007.

For 2008 and 2009 the income used was $60,000, and the Dataquick median home price for May ($380,000 and $295,000).  This is the chart of median price/median household income:

Since 1980 the number has never been under 4.0. 

Yes, today’s median sales price is skewed artificially low due to the hot lower-end markets, but overall it looks like the relationship has gotten somewhat back in line.

Yes, the higher-end is screwed up, and has a long ways to go.  The median sales price so far this month for the 126 detached sales from Carmel Valley to Carlsbad is $800,000.  But as more higher-end sellers sell for less (instead of not selling), this number should trend higher if the median sales price rises, and incomes stay the same.

What if the median income goes down at the same time?

Example: Median sales price trends up to $350,000 due to additional higher-end sales, and the median income drops to $55,000.  New ratio is MSP = 6.36 x income.

I’m not sure we’ll depend on this relationship to tell us much in the future.

The Harvard Excel spreadsheet for metro USA areas: metro_affordability_index_20071

Pin It on Pinterest