Rationality will prevail eventually: We'll get back to 3x annual income for the simple reason that the fake appreciation due to easy loans is history.

The thing I fear though is the in-between period. Many folks will hold on thinking that the downturn is "temporary", so prices will stay elevated for a few extra years. As a consequence, you'll see doubling-up and tripling-up in housing that normally would have held only one family.

How so? Houses, as a rule, are investments, and like any investments should be considered rationally.

He's saying that half a million is too much for a merely 'nice' home.

But this is just a linguistic conceit on the part of home buyers.

There are mansions (homes that you can't afford), nice homes (homes that you can afford, and are in good condition/areas), and there are slums (homes you can afford, and in bad conditions/areas).

No one wants to live in a slum. No one can afford a mansion. So a 'nice' home is the only realistic choice.

Isn't this the very kind of thinking - thinking that houses are investments and surely the prices will go up - that caused the housing bubble?

Looking at the real estate listings for my area, the most expensive home for sale is $1M; and it is a beautiful mansion. I couldn't imagine paying $1M for just a nice home.

Looking at my area, the cheapest house I'd actually consider buying in an area I'd actually want to live, is north of $600K. House prices having nothing to do with the building, and everything to do with the location. It's (relatively) easy to make an ugly house beautiful.

Don't imagine living in the Bay Area then. :)

It just means the dollars have depreciated substantially. Nothing to see.

Seriously, housing is one of the best inflation hedges.