Does Median Income Have Anything to do with Median Home Values?

Okay, I'm really sick and tired of this argument. You know how it goes: "Median income has not kept up with median home values in Sacramento, this home prices must fall until everyone in Sacramento can afford to pay a third of their monthly budget toward their mortgage." It's a seemingly innocent calculation and very easy to remember; so simple in fact that it gets quoted again and again and unfortunately believed.

Here is a list of areas where median incomes do not - by a long shot - keep pace with median home values. Interesting, huh?

Here are a few reasons that calculation, pat and easy as it is to parrot, does not work:
1. Not everyone can afford a home. Some people rent. Sometimes all their lives.
2. Some people buy more than one house and rent it to others. They are called real estate investors and landlords.

On an individual level (and for budgeting and loan purposes) it helps to use the 30% rule. But as a large group and especially when relating to medians, that formula falls apart. To push every individual and situation into a formula is ridiculous.

The next time you come across pat formulas like these, question their basis and their source.