The most overpriced suburbs in America

Those suburbs often begin as small residential centers, and are designed to be low density and non-commercial. But as they grow in population, they turn into economic centers of their own, acting as satellites to the principle city instead of escapes from it. When a suburb adds stores, restaurants, factories, malls, office buildings and other commerce centers, it requires a wider range of people, with a wider range of financial characteristics to keep it viable.

In a large suburb like Santa Monica, for example, where the majority of houses are out of reach to the median earner, there are million-plus beachfront condos and homes that are occupied by the Hollywood set; nearby are a high inventory of small apartments rented to 70 percent of the local population.

While California suburbs in particular have always been expensive, the spreads between median income and median price have never been this exaggerated. That's because the housing boom pushed prices up far faster than incomes rose. With every dollar prices rise above what incomes can cover, it becomes more difficult for renters to move into buying.

Another obvious place affected by this trend was South Florida, where prices spiked during the boom, but incomes and economic activity didn't rise accordingly. West Palm Beach, Fla., and Pompano Beach, Fla., both on our list, are good examples of inflated income-to-price spreads, at $318,300 to $45,250 and $279,500 to $42,409, respectively.

The economic effect?

"This is brand new," says Wendell Cox, president of Demographia. "It's all happened in the last six years and we're not sure what it means yet."

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One thing it does mean is heavy out-migration. Cox points out that many of the areas with the highest spreads — in and around San Francisco and Los Angeles, most notably--are rapidly losing population to places in the South and Southwest, locations where affordable housing and business costs have drawn people and jobs from coastal population centers.

But incomes don't necessarily need to fall in line with housing prices for values to trend upward; just take a look at the extreme counterexample in New York City.

Now, no suburb is likely to ever achieve the density and economy of New York City, but what has made the city's legendary lack of affordability sustainable is the balance between the prices of homes and what different market segments can pay for them. People don't often move from renting to buying there, but so long as there are enough people earning enough to sustain the price increases, it's not critically important what the median income is.

"The average wage in the financial district is $330,000, but the overall census numbers are around $40,000," says Jonathan Miller, director of research at Radar Logic, a New York real estate firm, of the city's median income level. So long as the number of pricey homes available doesn't outpace the number of people able to buy them, he says, a market can be in balance, despite an apparent imbalance in income-to-home-price ratio.

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