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.
U.S. Median Home Prices
|Current Median*||What the Median Should Be||% Difference|
Median household income information is not yet available for 2007, so we will be using median household income data for 2006 in this example and in the following examples. It should make very little difference since household incomes increased by 4 percent at the most (and that's a very generous estimate) in 2007....MORE