Housing Prices Still Not Making Sense

My husband and I are looking to buy a decent house in a decent neighborhood for a reasonable price, but we're having trouble finding such a thing.  There are decent houses in decent neighborhoods, but their prices are not reasonable.  For all that housing prices have fallen over the past few years, I believe that they still have further to go.

How can I say this when houses have already lost anywhere from 20 to 60% of their values?  Because they were inflated to more than that during the bubble, and incomes haven't risen significantly over the last decade.

Here's the thing.  According to the Wall Street Journal, a household shouldn't plan to spend more than 28% of its gross monthly income on mortgage/property taxes/maintenance/PMI.  (This is a fairly common rule of thumb.)  In 2000, the median household income in Nashua, NH (where we're looking) was $51,969.  Let's assume that household also had a monthly debt load of $500 (between car payments, student loans, and credit card minimum payments), and savings sufficient to put down 20% of the purchase price.  Using the Wall Street Journal's mortgage calculator, that household income would qualify to purchase a home that cost up to $141,365*.  In 2000, the median house in Nashua only cost $132,200, so the average household could purchase the average house, and then some.  In 2009 (the most recent year covered by city-data), the median household income in Nashua had risen to $58,789.  Using those same assumptions, that household could purchase a home that cost up to $181,942*.  That's a problem, since the average house in Nashua in 2009 cost $248,500.  In order for the average household to purchase the average house at that price, the median household income would need to be closer to $69,000.  Even assuming our household is completely debt free, the maximum house they could afford would be $205,997, still well below the median.  Neither housing prices nor incomes have changed much since 2009.

As much as sellers and realtors don't want to admit it, a house (or anything else, for that matter) is only worth what a purchaser will pay for it.  As long as the average house is out of reach for the average purchaser, it's overpriced.  Unless incomes go up significantly in the very near future, housing prices still have a ways to fall.  In Nashua, it's looking like another 27%.

Maybe my husband and I are better off continuing to rent for now.


* I assumed a 30 year fixed mortgage at 8% in 2000 and 5.5% in 2009, both of which are historically accurate.  The tax rate was roughly 2.1% in both years.