The simple measure of sanity in housing prices, Zelman argued, was the ratio of median home price to income. Historically, in the United States, it ran around 3:1; by late 2004, it had risen nationally, to 4:1. All these people were saying it was nearly as high in some other countries, says Zelman. But the problem wasn't just that it was four to one. In Los Angeles it was ten to one and in Miami, eight-point-five to one.
In "The Big Short: Inside the Doomsday Machine," Michael Lewis discusses the rising housing prices and their implications on housing affordability. Analyst Zelman highlights that a balanced measure for assessing sanity in housing prices is the ratio of median home price to income, which historically averaged around 3:1 in the U.S. However, by late 2004, this ratio had escalated to 4:1 nationwide, raising concerns about housing market stability.
This troubling trend was not uniform across the country. For instance, in cities like Los Angeles, the ratio skyrocketed to 10:1, and in Miami, it was 8.5:1, indicating severe affordability issues in these markets. Zelman notes that similar escalations were observed in other countries, posing a significant question about the sustainability of these price increases and the future implications for potential homeowners.