Shouldn't home prices be tied to the average(median) household income of an area?

Question

If the median household income in Orange County (CA) is just below 60k, how can the median home price be 500k? Does this mean homes are mainly owned by investors and not by actual homeowners?

Answer 1

Its partially because of speculators and partially because people get huge loans for houses that they can't afford.

Answer 2

“Median” just means the middle, it’s not a true average.

In the list below, 2,000 is the median, while 3,720 is the mean.

100

500

2,000

6,000

10,000

Even so, keep in mind that median applies to all earners not all *homeowners.* It’s not reflective of what homeowners alone make, it includes renters as well.

Answer 3

No, it means there are way more low-income  families in the area than there are houses.

Remember, "household" does not necessarily refer to a family in a house - it also refers to people in apartments who will generally have lower incomes.

Throw in the fact that it's not unusual to find 2 or even more families of illegal immigrants crammed into a single apartment or house for cost reasons, as well as the sub-prime mortgage idiocy that was handing out million dollar mortgages to families who weren't even close to making enough money to support such a mortgage, and it's easy to see how the correlation between these two statistics is, well, useless.

For instance, in Sunnyvale CA where I live, you can't even start talking about buying a house unless you're willing to start at about $700k.  Yet, all over the city are cheap apartment complexes and even a trailer park or two (houses there start at $300k + rent for the land...)  I'm sure the median income and housing price will be as skewed as what you're seeing down in So-Cal.

Answer 4

You're kind of comparing apples to oranges. The median income is for all residents of the county. The median sales price is just the amount of homes that sold in a given time period. What you need to find out to have this analysis mean anything is the median income of only the people who bought those houses.

Answer 5

Prices should not be "tied" to anything.  The United States has a free market economy which means that if I may choose to sell something and you may choose to buy it or not.

Answer 6

Home prices should be tied to whatever people want to pay for them - just like everything else in a free market economy.