The income gap is a helpful overall measure of housing market fundamentals but should be taken with a grain of salt, said Delores Conway at the University of Southern California's Lusk Center for Real Estate. Also interest-only loans, adjustable rate mortgages, subprime loans and other forms of "creative financing" make it possible today for people to buy, Conway said. Equity from selling a house also helps close the gap by letting the buyer make a substantial downpayment and reducing the price, Conway said. Still, people will eventually stop buying when prices rise too high, said Celia Chen, director of housing economics at Economy.com, a West Chester, Pa., research firm. That will drive prices down, Chen said. The market tends to self-correct itself, said Conway, who predicts that prices will begin leveling off in the next couple of years. Some Los Angeles-area appreciation rates have already fallen into the teens, though Bakersfield's market remains strong, she said. In the meantime, the Central Valley's income gap is still significantly smaller than in larger metropolitan areas like Southern California and the Bay Area. The Bay Area had the biggest income gap in the state, where median-income homebuyers fell $ 102,000 short of qualifying for a middle-priced home. Bakersfield resident Debra Carrasco said her family wouldn't be able to afford a house in Los Angeles but can't find a suitable one in their price range here either. Carrasco said they're planning to sell their current home, which they've outgrown, to qualify for a better loan. "The houses are going up higher and higher and haven't stopped," she said. It just makes it difficult for us."
