Bret Arends has a good article in today’s Journal, Home Prices: Low, But Still No Bargain:
Over the long term, average home prices have tended to track average earnings. And by this measure the market may have much further to fall.
I looked at Case-Shiller’s index back to 1987 and compared it to federal data on average earnings. The result, rebased to 100 in January 1987, can be seen here. And it’s alarming. By this (admittedly very simple) measure, today’s home prices are actually more expensive, in relation to average earnings, than at the peak of the 1989 property bubble.
Equally noteworthy is that when the last property bubble burst, it took about eight years before the market showed really strong signs of revival. This bubble was far, far bigger.
He did a similar article last year and it rightly predicted the current downswings in the housing market.