So this question was posed a couple of times on the IHB and other places but never quite answered so wanted to get the thoughts of TI folks.
Are current prices a function of median income? Median income is often pointed to as one of the key indicators to point to homes being priced "properly" or not.
On one side of the argument, of course median income matters for pricing. If the people who are living there can't afford the housing, then homes are overvalued and are due for a correction.
On the other side of the argument is the fact that only the income of the new buyers matters. If 10% of a homes in an zip code inventory turns over per year, then as long as the new 10% have the income or wealth (ie savings, previous equity or other source of funds) to support the pricing, median income won't matter.
Yes it is true that median income will also rise as a result of 10% of the new residents replacing or changing the mix of the income balance. But even if the new buyers have 10X or 20x the income of the median, the median income will only go up the next incremental 10% of incomes on the list. (Since median has no weighting of any kind).
To some degree, they will be correlated because I don't imagine that people who make +500K a year want to live in a neighborhood where the median is $20k or something. But I looked up Beverly hills (90210) and the single largest demographic group was actually 500k+ and then 2nd was 250k to 500k but the median for BH is still "only 147k." Clearly the 90210 prices can't be supported by the median income with the average per sqft is 910.
This might be an argument for BH being overdue for a major correction to the tune of 80% or more from its average Redfin listing price of 2.8M from the fundamentalist but this won't happen.
For Irvine, how much does median income matter as a driver of the new median transaction cost? No Irvine isn't as special as a brand as BH and the income distributions have a more "normal" distribution vs BH but what makes one zip code, city or neighborhood fundamental able to defy median incomes into what seems like perpetuity whiles come crashing down?
Are current prices a function of median income? Median income is often pointed to as one of the key indicators to point to homes being priced "properly" or not.
On one side of the argument, of course median income matters for pricing. If the people who are living there can't afford the housing, then homes are overvalued and are due for a correction.
On the other side of the argument is the fact that only the income of the new buyers matters. If 10% of a homes in an zip code inventory turns over per year, then as long as the new 10% have the income or wealth (ie savings, previous equity or other source of funds) to support the pricing, median income won't matter.
Yes it is true that median income will also rise as a result of 10% of the new residents replacing or changing the mix of the income balance. But even if the new buyers have 10X or 20x the income of the median, the median income will only go up the next incremental 10% of incomes on the list. (Since median has no weighting of any kind).
To some degree, they will be correlated because I don't imagine that people who make +500K a year want to live in a neighborhood where the median is $20k or something. But I looked up Beverly hills (90210) and the single largest demographic group was actually 500k+ and then 2nd was 250k to 500k but the median for BH is still "only 147k." Clearly the 90210 prices can't be supported by the median income with the average per sqft is 910.
This might be an argument for BH being overdue for a major correction to the tune of 80% or more from its average Redfin listing price of 2.8M from the fundamentalist but this won't happen.
For Irvine, how much does median income matter as a driver of the new median transaction cost? No Irvine isn't as special as a brand as BH and the income distributions have a more "normal" distribution vs BH but what makes one zip code, city or neighborhood fundamental able to defy median incomes into what seems like perpetuity whiles come crashing down?
