What Should The Average House Cost?

I've been trying to talk about my view that home prices need to fall further, but seekingalpha.com did it better than I could. Check out this discussion of home prices. They argue that the price of the average home should be somewhere around 3.2 times median household income, where it has been for the past 30-40 years. Put in today's terms, they argue that the median home price should be 3.2 times the estimated 2008 median annual household income of $52,134, or $166,829. This represents a 40% drop from the current levels just above $200,000.

I agree with that math.

Of course, you could make the argument that home prices don't necessarily need to have a correlation with household income, or that the ratio of around 3 times income no longer applies. However, I think you'd be kidding yourself.