I am curious in a macro economic sense, if housing prices really can continue to rise past 2006 levels (thinking US here..) at a rate much faster than income is rising?
When over the long term housing costs in a area rise faster than wages rise, the demographic of who lives in the area changes. The size and income parameters change. A region that was full of young singles is now populated with couples with adult children, that means that the businesses and amenities have to change.
At a national level it isn't sustainable unless other items change. The portion of monthly income that can be safely allocated to housing would have to change. One adjustment could be the the lengthening of home loan periods, thus dropping the monthly payment. This has been seen with car loans, over the last few decades the length of loans has increased.
In interesting related event could be the change in deduction of mortgage interest and property tax. If this was to change abruptly, there could be an abrupt change the estimated value of housing, because the calculus of affordability would change.
In a strictly mathematical sense, no. Or rather, it depends what 'long run' means.
Say today the home average is $200K, and payment is $900/mo. The $900 today happens to be about 20% of the median US monthly income (which is approximately $54,000/yr).
Housing rises 4%/yr, income 3%/yr. In 100 years (long enough?) the house costs $10M but incomes are 'only' $1.03M/yr, and the mortgage, even at the same rate is $45K/month, or, to be clear, it rose to 52% of monthly income.
My observation is that, long term, the median home costs what 25% of median income will support, in terms of the mortgage after downpayment. Long term. That means that if you graph this, you'll see trends above and below the long term line. You'll see a 25 year bubble form starting in the late 80's as rates dropped from near 18% to the Sub-4% in the early 00s. But once you normalize it to percent of income to pay the loan, much of the bubble is flattened out. At 18%, $1500/mo bought you a $100K mortgage, but at 3.5%, it bought $335K. This is in absolute dollars, wages also rose during that time. I am just clarifying how rates distort the long term trends and create the short term anomalies.