The housing market will correct when the median price relates to the median family income

[Phoebe Loosinhouse]

Duh! - Using 30 year fixed rate mortages as an affordability indicator. Everything else is smoke and mirrors. Why am I not head of Hud or the Fed?

Also, ALL investor first mortgages should be minimum of 15-20% down.

[Porcupine]

1. What ratio? How many times your income could you borrow?

Would we be talking about median household income or median wage-earners income? If it's the second then we price out of housing many single parents and divorced persons.

I think the US did best when one job at a supermarket provided an adequate income for a four person family to buy a house. In California now it takes at least 3 such jobs to support what once the family that one job did 20 years ago.

[Phoebe Loosinhouse]

2. Household income.

I'm not talking about WE price out of housing single parents and divorced persons. Who is WE?

I don't think I ever recall a time when "one job at a supermarket provided adequate income for a four person family to buy a house". What the heck are you talking about? The cashier? The general manager?

Anyway, older guidelines were that a "household" could afford approx 3 x the annual gross income for a house and housing expenses (mortgage, taxes, insurance) would not be more than 30% of gross income. Made sense then, makes sense now.

[MannyGoldstein]

3. Housing Prices are 4x or More What They Were By This Measure

I studied this about 10 years ago. Compared to a median full-time wage, housing prices had gone up by 400% between 1970 and 1990. Worse now, I think.

Try an experiment - ask someone who purchased a house in the 1960s or 1970s what they paid for the house, and what they earned per year back then. The numbers will be roughly the same - the house cost roughly one year's income. Now you'll find that people spend 4x or more their yearly income.

[mykpart]

4. 40 years ago, when I was a first-time home buyer,

we were told that we could afford a house that cost no more than 2 X our annual income. And that's when the interest rate was around 7% to 7-1/2%.