I have a question which assumes the accuracy of two links (here, for median income, and here, for median home price, both of which are in California). I'm going to make an erroneous assumption and state that the median income in California is actually what the 4 person household makes (see the link and table); meaning about $76,000. I'm admitting that this isn't the actual true median though (more than likely, based averages, it would be closer to $63,000 to $65,000).

Considering that the median home price in California is $400,000 and the median income is $76,000, what sustains this housing market in California (if it's sustainable)? Asked differently, why shouldn't anyone be shorting the California housing market, as, unless incomes increase, this appears unsustainable (home prices are at least 5x the price of incomes and from the articles I've read, they're growing in cost; good mortgage advisors generally suggest a person only buy a house 3x their income - 4x their income is generally seen as questionable)?

Forgot to mention, this question is partially based on these criteria for buying a home.

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    Maybe because currently interest rates are low, so more people are buying and that sustains the demand? just a thought – Victor123 Jan 10 '14 at 21:10

A well-written mortgage would allow ratios of 28/36, i.e. 28% of gross income going to cover housing. $400K times 80% LTV requies a $320K mortgage, at 4.5%, a $1621 payment. If we multiply this by 4, then the 12 months' income is $78K or so. (I just set payment to be 25% of income.)

In my riveting article You want to lend that couple how much? I discuss how some mortgage brokers will go far higher than these ratios.

Note, also, your median numbers may be right, but the distribution of incomes does not reflect a bell curve. Last, note that the 3X, 4X, etc numbers are not static. They change based on interest rates. You can afford far more at 4% than at 9%.


The story about median home prices states:

"single-family detached home climbed to $402,760 last month,"

That means it doesn't include townhouses, condos, apartments. Many of which are cheaper.

The apparent disparity also doesn't address the case when young people share a place as roommates.

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