Specifically, I'm wondering if there was a time when we were having the same debate about housing that we are now having about college tuition, but that it has been long enough (and there have been economic gains for homeowners) that we conveniently forget how much our longstanding policies drive up housing prices. The idea of buying a home on a full year's salary sounds crazy, but then again there was a time when 4 years of college could be paid off fully via part time work while at school, something that is distant pipe dream these days for the majority of jobs within the reach of most college students.
I'd like to be in an alternate universe without the Iraq and Afghanistan wars. Afghanistan is famously The Graveyard of Empires, and I wonder if we are not just staggering around with a mortal wound, with another crash coming to bring us down comprehensively. Nationalizing the ibanks instead of TARP would be a nice alternate universe, too.
It is interesting, and sad, to think of how much may have ended up hanging on a couple of hundred Florida voters. Of course, it may be wrong to think that a Gore presidency would have been all that different.
And also consider that homes built today have to go through tons of regulatory costs (building codes, politics with permits), there are new technologies installed, AC, internet, upgraded roofing, better foundations, upgraded wiring, possibly an HOA, rec center, etc, paved sidewalks in front of every house. The US Census Bureau has also determined that the average size of a home is 2,480 square feet vs 1,600sqft in 1970. All the progress that we have made with homes today costs.
If this was true across the board (tightened credit), homes simply would not sell at their current prices. Most people, with the expenses of day-to-day living, would have a very difficult time scrounging up $600k for the down payment of a home, if they could do it at all in their lifetime. Meanwhile the stock of unsold homes and anxious homeowners looking to move would grow. Market forces would eventually push these prices down.
This isn't even theory. This literally happened after the crash when banks stopped loaning money. People wanted to buy houses, and why not? Loan rates were insanely low. But a substantial portion of the population found it difficult to extend their credit further, or get first-time credit, and thus house prices tanked around the country.
You're right that the Bay Area is unique. We have a dangerous combination of: The aforementioned credit, many highly paid people, and people who are younger, and perhaps less intelligent with how they evaluate the value of things, using credit as a sledgehammer to get what they want. But even well-payed engineers couldn't afford the houses around here without substantial credit extension.
GDP is a great metric for long-term or inter-national comparison. It's terrible as a quarterly national management metric.
Bring on the pain, I say. Real growth comes from companies investing in their workforce, not people drowning themselves in debt.
Put another way: it used to be that you could buy a house for the equivalent of a year's salary. Now it seems most houses are about 5-6x the average salary of a given area. If that were still the case today, most Bay Area residents should be making near 1 mil/year or houses here should be closer to about $150-200k, more likely the latter since credit is primarily the reason for the inflated cost.