Sunday, September 2, 2007

What should the Median Price be?

Just for kicks I took a chart from a NAR report for Riverside. Using their chart and drawing a line from the start (1980) through the top of the last peak and out to today we come up with a median price of approx $225k. Since this line is through the top of the last peak it's probably on the optimistic side. If you took that line and went through 1995 the median drops to about $150k. I personally think that the median price should be closer to the middle if those 2. However looking at another NAR chart on Price to Income ratio's we can see that this ratio stays between 2 and 3 from 1980 all the way through late 2002. After 2003 the ratio goes parabolic, jumping to nearly 6x by late 2005. I believe it's closer to 7 or 8 now! If we go back and use this traditional measure of what a home should cost we once again come up with a number close to $150k. Riverside currently has a median price of about $420k putting it about 170% above the $150k number I keep coming up with. Even if I use the higher $225k number, prices are still 85% overpriced. In other words, to fall back to traditional values homes would need to decline 65% to hit the $150k number or 45% to get to the higher $225k number

And if it's not clear enough yet that home prices are WAY out of whack, take a look at the last graph.

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