Monday, February 9, 2009

All about the Price to Income Ratio

Housing Kaboom recently discussed a possible way to predict when the housing prices would hit bottom...and noted that there is not one bottom for every locality.

Recently Beacon Economics predicted that the SoCal housing market won’t hit bottom until the summer of 2011. Many other forecasters are predicting a similar time frame. The thing is, in the real world, the bottom will be hit at different times in different places. If you go out to Perris or San Jacinto, those areas are already so close to the bottom the are kicking up sediment. Corona and the areas around it are still a long way from hitting mud. Go out to Laguna or Palos Verdes and they are years behind us.

The post then discussed Price to Income Ratio.

Historically the Price to Income Ratio in the IE is 2.7. at the Peak it was 7.1! even though there have been massive price drops, it's still around 4 in most areas.

The post then calculates current price to income ratios for several areas. Here's an example:

The median family income in Corona is around $75k. That means the median house needs to be around $200k. Currently the median home is $325k. That's still a large difference from where it is to where is should be. Current ratio 4.33

For calculations for other cities, see the post.

blog comments powered by Disqus