Inflated Median Housing Value to Income Ratio

March 5, 2008

A recent article at Homeguide123 shows what median home prices would look like if the bubble never happened. Here’s the main portion of their supposition:

Historically, median home prices and median incomes have always shared a close relationship. From the mid-1970s to 2001, the historical ratio of median housing value vs. median household income was consistently between 2.6 and 3.0.

What this essentially means is that median home prices were (on average) 2.8x the median household income for the last 30 years. Using this 2.8 formula, it is very easy to estimate what median home prices would be if the most recent bubble never happened.

The results show that the median home price is 35% above this metric, and California a whopping 61%. But perhaps Walnut Creek is a bit different, right? We probably have higher incomes and then there’s the whole supply and demand equation that might skew things for the Bay Area in general and Walnut Creek homes in particular.

So, I dug up some information at city-data.com that shows that the bubble has clearly been felt in Walnut Creek.

Walnut Creek Median Home and Income

So, let’s do the math. In 2000 the ratio was $391,200/$63,238 or 6.2. This is clearly more than the national average and shows the premium that we pay for living in such a great area.

However, let’s to the math for 2005. $862,200/$69,000 or 12.5! That’s double the ratio from just five years prior and I doubt highly that the numbers have changed for the better in 2006 or 2007. To put it another way, income rose 9% over the 5 year period while home values rose 120%!

I ask you, does this sound logical? Does this sound sustainable? Walnut Creek Housing Bubble? Oh yes.

Walnut Creek Pricing Trends

March 2, 2008

There is a lot of data out there about the trends in Walnut Creek housing prices. A number of realtors are very willing to share these snapshots of the current market. But the commentary is often so skewed toward creating sales that it may blind buyers to the true nature of the market.

California Home Sales Trends
In the above chart it should be VERY obvious that the median price increased at an unsupportable rate. This fact is simply not stated by may realtors, but buyers and sellers alike should be aware that the price of homes in California, Walnut Creek included, are inflated and will either drop or remain flat based on historic appreciation.

Buyers – don’t believe the hype. Stay on the sidelines and let the prices fall until you can buy at a price that is historically supportable.