I just read an excellent, although short, article on CNNMoney.com on one way to tell if a home is fairly priced in a neighborhood by using a rent factor. I agree with the assessment. But what is missing is also is the correlation between prices and income in a particular area. Case in point; When prices skyrocketed, many areas had mortgage payments that were more than what the average income was in the area which if you think about it, made it necessary (but not smart) for many of these buyers to get stated income loans because the prices were so high, the average person had to lie on their loan application (not smart either) and thus here we are in this mess.
What's interesting though is that now these prices have come down and continue to do so in many areas to where the payment is more closer to where it should be in regards to what borrowers are making in these areas.
Funny how things always have a way if figuring themselves out!