Local home prices

As I am getting married there has been some talk of buying a house. So, I decided to repeat some calculations in every local market I might end up buying in.

I take the position that because median incomes have stagnated during the past decade while a huge number of homes were built and unemployment skyrocketed there is no fundamental reason for home prices to be any higher than they were in 2000. I therefore expect that they will drop to that level, either through further price drops or inflation. Also, because interest rates have been so low they have nowhere to go but up. This will also drive prices lower.

So, I decided to see just how far above 2000 prices houses in my area remain. I looked up 2000 median home prices from the U.S. Census, and current home prices from Zillow.com. From those numbers I came up with the following numbers for how overpriced homes are:

Brea
2000 $261,700
Inf adj 2000 $332,000
Current $476,000
Amount Overpriced: $135,000
Percent Overpriced: 41%

Fullerton
2000 $241,900
Inf adj 2000 $307,000
Current $432,900
Amount Overpriced: $126,000
Percent Overpriced: 41%

Rosemead
2000 $182,200
Inf adj 2000 $231,000
Current $387,000
Amount Overpriced: $156,000
Percent Overpriced: 68%

Alhambra
2000 $210,400
Inf adj 2000 $267,000
Current $451,000
Amount Overpriced: $184,000
Percent Overpriced: 69%

Covina
2000 $189,500
Inf adj 2000 $241,000
Current $337,000
Amount Overpriced: $96,000
Percent Overpriced: 40%

West Covina
2000 $190,200
Inf adj 2000 $242,000
Current $361,000
Amount Overpriced: $119,000
Percent Overpriced: 49%

Walnut
2000 $279,700
Inf adj 2000 355,000
Current $556,000
Amount Overpriced: $201,000
Percent Overpriced: 57%

Diamond Bar
2000 $245,800
Inf adj 2000 $312,000
Current $44700
Amount Overpriced: $135,000
Percent Overpriced: 43%

Yorba Linda
2000 $346,100
Inf adj 2000 $440,000
Current $607,200
Amount Overpriced: $167,000
Percent Overpriced: 38%

Corona
2000 $194,400
Inf adj 2000 $247,000
Current $327,000
Amount Overpriced: $80,000
Percent Overpriced: 32%

Chino
2000 $173,600
Inf adj 2000 $220,000
Current $300,000
Amount Overpriced: $80,000
Percent Overpriced: 36%

Chino Hills
2000 $242,600
Inf adj 2000 $308,000
Current $462,000
Amount Overpriced: $154,000
Percent Overpriced: 64%

Placentia
2000 $264,500
Inf adj 2000 $336,000
Current $469,000
Amount Overpriced: $133,000
Percent Overpriced: 40%

San Dimas
2000 $232,400
Inf adj 2000 $295,000
Current $406,000
Amount Overpriced: $111,000
Percent Overpriced: 37%

Claremont
2000 $251,000
Inf adj 2000 $319,000
Current $487,000
Amount Overpriced: $168,000
Percent Overpriced: 67%

So, to make buying a home worthwhile someone would need to give me at least a hundred twenty thousand dollars which could not be used for any other purpose. Even then it could be a bad investment. After all, there is nothing magical about 2000 prices. After all, we just had a lot of construction at a time without a whole lot of population growth. Prices could always drop to 1997 levels which were a fair bit lower than the ones I am comparing to. I am just using 2000 levels since I can't see a real reason why prices will stay 40-70% above these levels.

It should be noted that this is not just true in Southern California. Nationwide housing prices are still 58% above what they were in 2000. So expect the bust to continue for quite some time.