Insightful piece in Fortune magazine, this is from Nov. of 2007, but gives an outlook for the future prices of homes based on prices falling back in line with rental rates.
Some areas won't see a price drop, where they were not affected as much by the scramble of investors trying to get a piece of the action--Dallas, Indianapolis, and Cleveland. These areas aren't overbuilt.
Then there are the places like New York, Chicago and San Francisco, which will stay pretty consistent, as there's just isn't new space to build. And finally, the places where there could be a double digit price decrease, parts of the Phoenix area, Las Vegas, and outer sections of the Bay Area and Los Angeles, cites like Sacramento.
What do familes look for when scouting property?
- schools and proximity
- number of rooms
- yard or no yard
- two car garage
What do economists say when scouting property?
- interest rates
- employment
- population growth
People won't pay much more for a mortgage than they would to rent, unless there's a high rate of appreciation to be had
According to our calculations, prices in most markets will fall by double digits over the next five years.
Rising rents help a bit but the prices have to drop down to closer to the average rents for an area.
Where Housing is Headed
You can see the results for 54 areas around the country in this table.
Price to Earnings Ratio
The P/E ratio is often used to determine the value of a stock but this same method can be applied to a property. For property, the equation is price of the property divided by the rental income, minus any expenses such as property taxes, insurance or HOH fees.
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