Roger, one of the things I've always wondered about during this bubble was this:

Assets tend to revert to a trend line of appreciation after bubbles and after panic sell-offs. For examples, we like to talk about SP-500 stocks being worth about 15 times (or something similarly adjusted for inflation) forward earnings, and when the SP-500 becomes highly appreciated above this trendline, smart market watchers expect the market to either consolidate the gains and not appreciate any more until earnings catch up, or, for equities valuations to correct the valuation back down to the trendline.

In equities, earnings power the trendline upwards.

In housing, it is household income that powers house prices upwards.

Looking back, oh, 30 years or so, we see that median house values have stuck around 2.6 to about 3.0 times median household incomes. Let's pick a middle number of 2.8 for the household income multiplier for house values.

When we look at residential real estate values nationwide, we're looking at an overvaluation against median household incomes of about 35%.

In California, we're looking at an overvaluation of about 60%.

The best regional market is the midwest - with only about 15% overvaluation.

Given that real estate depends on a lot of liquidity because most people need to borrow to buy, and the banking sector is cratering, the Fed is in a jam: saving the banks means the bubble takes much longer to deflate - but make no mistake, the bubble will eventually deflate.

What I don't understand to this day is how people lost sight of this 3:1 ratio. I've been told foooorreeeever by everyone from my mother, grandparents, mentors, CFP's, etc that folks should plan for being able to buy a house 3x their household income.

Seems as tho a whole bunch of folks were never taught this and fell prey to greed and the classic "this time, it's different" notions. I remember quite distinctly during the dot-bomb bubble that people were saying "It's the NEW ECONOMY." I kept replying "Bullcrap -- is the new economy printing its own currency? No? Then it isn't a 'new economy'." This time 'round, it was various pundits saying "Housing bubbles are impossible, because people live in houses." Again, bullcrap. Houses are capital assets just like anything else - they're just less liquid than stocks or bonds.

The older I get, the more BS I find everywhere in financial markets.