Is there a house bubble in Edmonton?

smalltown

How to figure a home's fundamental value
Leamer says he can tell because homes, just like stocks, have a price-to-earnings ratio (P/E) that he believes determines their fundamental value. The “earnings” part of the ratio consists of the annual rent the house could command. Homebuyers can compare current P/Es with historical levels, Leamer says, to get some idea of whether houses in their cities are becoming overvalued.

/ v0 ~4 H& O9 E5 f7 VNot everyone buys the idea that P/Es dictate value. But investors who completely ignore P/Es do so at their peril, as many have learned in recent years. Leamer, who heads the prestigious Anderson Forecast at the University of California in Los Angeles, points out that the P/E for the Standard & Poor’s 500, a key stock benchmark, was nearly double its previous historical high when the stock market bubble burst in 2000. When home P/Es peaked in California, Boston, Dallas and other markets in the mid-1980s, devastating real estate recessions followed.

Leamer didn’t invent the concept of P/Es for homes. But his willingness to proclaim bubbles in several of the nation’s hottest markets has brought him lots of attention recently.

5 A$ \1 N' {/ b: S1 g0 MTo calculate P/Es for entire cities, Leamer divided the median home price in each by the annual rent for a two-bedroom unit in each city -- and looked at P/Es each year since 1988. Here’s what he found:
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. S$ d, K/ T9 Y0 z* m- j( v0 ]% VIn Boston, the residential real estate market’s P/E recently topped 30 -- compared with just under 20 in 1988.
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: H% t6 T* }4 a+ o; BSan Francisco’s previous peak of 25.6 in 1989 has been eclipsed, with the P/E currently at just over 27.
San Diego’s current P/E is nearly 30, compared with a 1989 high of 23.4.
; w. P. f& y" c1 eNew York, by contrast, is actually well below previous peaks. The area’s current 22.5 P/E is above its recent nadir of 17.6 in 1993, but down from 28.6 in 1988.
You don’t have to know exact P/Es, however, to spot signs of trouble, Leamer says. Any time there’s a disconnect between prices and the underlying value of homes, as measured by their market rents, there’s the potential for a bubble.
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: D9 ^5 E, @$ i+ j4 V3 PIf home prices are rising much faster than rents, as is true in Los Angeles, that’s a strong indication a bubble is forming.

' t- d, y% u( c3 ^" AIf home prices are rising while average rents are falling -- which is the situation in San Francisco -- the bubble is pretty much unmistakable.
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9 B' E+ T" Q  G1 Q% A0 r/ L Home P/E ratios for 9 metro areas
Avg. 1988-2000 2001
Boston  20.5 30.2
! @# e/ n$ Y5 t1 JSan Diego  22.8 29.7
San Francisco  23.8 27.2
Los Angeles  21.3 25.6
; _8 @: _9 t1 j3 C  f2 k, GSeattle  20.4 25
! ~7 K3 y  G7 ?9 HDenver  17.7 23.7
. ]5 r; ^# g) [! _0 NNew York  21.2 22.5
Chicago  17.2 20.8
Washington, D.C.  17.1 20.4

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3 f8 c5 `, E% B# L. n6 IIt's difficult to compare P/Es from one city with those from another. P/Es in Atlantic City, N.J., have wavered between 17.3 and 11.6 since 1988; in San Diego, P/Es have not dropped below 20. But you can look on the P/E as a measure of risk -- that is, the higher the P/E is above its average level, the greater the risk, no matter where you live.


From: http://moneycentral.msn.com/cont ... ingguide/P37631.asp

CANDYMAN

Who has the P/E for Edmonton for the last 20 years, please post it here.

it would be a good reference.

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醉酒当歌

20% buble at least. And it can take 3-5 years to digest the bubble if not burst.
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8 j) C0 G) F% P* P0 h[ 本帖最后由 醉酒当歌 于 2007-1-14 16:41 编辑 ]