We explore long-term patterns of the house price-income relationship
across the 70 largest U.S. metropolitan areas. In line with a standard
spatial equilibrium model, our empirical findings indicate that house
price-income ratios are typically not stable even over the long run. In
contrast, panel regression models that relate house prices to aggregate
personal income and allow for regional heterogeneity yield stationary
long-term relationships in most areas. The relationship between house
prices and income varies significantly across locations, underscoring
the importance of using estimation techniques that allow for spatial
heterogeneity. The substantial differences across metropolitan areas are
closely related to the price elasticity of housing supply.