Posts Tagged ‘median home value’

California Home Prices Declining $400 A DAY

March 27, 2008

It’s always interesting when you take a figure or statistic and slice and dice into a different presentation. Today it’s being reported that California Home Prices are declining $2,800 a week!

California Prices Decline 2800 A Week

It’s just a repackaged stat about the 26% decline in prices in California. Yet, $2,800 a week sounds a lot more dramatic than 26%, doesn’t it? And what if you take it down to the day, like I have in the title of this post?

I know the news outlets are just using their normal fear tactics to keep you listening, but in this instance I think it’s a public service. Too many people seem to be inured to the high prices of homes in California, and still don’t quite get that the market must continue to correct so more working Californian’s can truly afford a home.

The real question is how much longer will this decline continue?

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.