Arnold Kling  

California is another country

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Commenter Jim M. points to Housing Tracker as a source for data on house price to income ratios. Here is a list of the top cities in terms of median house price relative to median income.

1. Los Angeles, Ca. 10.5
2. San Francisco, Ca. 9.8
3. NY, NY. 9.4
4. Orange County, Ca. 9.2
5. San Jose, Ca. 9.2
6. San Diego, Ca. 8.8
7. Miami, Fl. 8.5
8. Riverside, Ca. 6.7
9. Boston, Ma. 5.4
10. Sarasota, Fl. 5.4

California has five of the top six. Outside of California, New York City, and Miami, most housing markets may not be far from equilibrium. Remember that my ceiling for a price/income ratio is six, while others peg it at four. But the median price/income ratio might be higher than the ceiling, because median income includes a lot of renters.

Overall, it looks as if prices may have to fall almost 50 percent in the top 7 markets, but in many other markets they don't have to fall at all.


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COMMENTS (6 to date)
Ross Williams writes:

50% seems a bit large. Remember, location location location. It appears from my observations that people would much rather live in places with a nice climate and great surroundings than in humid flyover country.

Can they afford it? It would depend on how gays would be classified under "median family income", separate or together. If separate, and using medium home sale price, then a gay male homeowner may have a ratio of 12, but would be 6 if his parter, without joint ownership, also made a similar amount of money.

How would they classify 4 single recent college graduates sharing a home? The house would be listed as a single family sale, though there would be for families (of 1 person each) living in it.

It would be interesting to see the statistics if they improved the methodology, but I would guess that "non-traditional" living arraignments would tend to skew the numbers higher, and in San Fran, a lot higher.

dearieme writes:

The nature of means is that you have to spend roughly the same amount of time beneath them as above them. And the nature of ratios is that when incomes fall, then prices do too if the ratio is to stay steady.

Bob writes:

I would not assume that income stats contain consistent biases across regions. In Silicon Valley, for example, if (a different) 2% of the population gets an option/equity windfall each year, then the ratio using median income will be misleading.

Randy writes:

Yep. In my neighborhood prices are still rising. Slowly, but still rising.

Floccina writes:

A lot of retired people live in Miami. They tend to have higher assets to income ratios.

Michael Sullivan writes:

One thing that all these cities have in common is that they are considered *extremely* desirable places to live by large numbers of people.

I suspect that such places can support much higher multiples than random small cities.

What's california's multiple been historically? I don't think the big cities and prime suburb or vacation areas have spent much time under 5-6 in the last 100 years, even though for many places that ratio would indicate a tippy-top market.

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