Price-to-rent ratio and price-to-income ratio are the two important indicators of housing market direction.
We are at year 2000 level. Check here for the chart of price-to-rent ratio from 1983 to now: http://www.crgraphs.com/2011/10/house-price-graphs.html This gives you good persective of where we are in terms of housing price. For price-to-income ratio, the most personal and relevant way is to calculator your own price-to-income ratio. The price should the price of houses in the area you are interested in buying and the income is your own income change over the past 10 year or whatever the period you are evaluating.
I have written about rent increases a lot in Silicon Valley. With rent expected to rise further, it makes more sense to buy a house. A two-bed room condo in north valley San Jose could cost you $2000/month for the rent. A single family house with three-bed room, two and half baths with only ten years new in the same are in north valley is priced around 530K. With 20% down payment, the current low interst rate of only 3.875% for 30 year fixed rate, your monthly mortgage payment is ony $1994 which also include over $600 principle payment. This means you acutal expense is only $1400.
You may ask, what about the property tax and insurance? These are ususally offset by the tax credit you get as a home owner.
Needless to say, if you are paying over $1400 rent now, you should explore the option of buying.
For those who may not have saved 20% for the down payment, there are plenty of loans out there for a down payment as alow as 3.5%.
