Is there a house bubble in Edmonton?

smalltown

How to figure a home's fundamental value
8 f& Y0 r8 o% m& }1 P! O" HLeamer 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.

0 |: m( K4 k9 V! N: l$ W$ S) ?5 B  uNot 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.
  I6 b5 h. P" g* P( y% j  |
! ~! V' _& G7 p& {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.
) e" |. q1 X$ I
/ o$ a* Y% ?6 E8 {6 v5 |+ TTo 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:


; x5 s, w. m' o0 T* t2 dIn Boston, the residential real estate market’s P/E recently topped 30 -- compared with just under 20 in 1988.
& k! s2 w7 l+ s9 ]5 n
* E1 E7 D/ @" z' q  M& MSan 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.
6 v4 _4 g; T5 ?" {! H2 LNew 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.
9 i; ^8 e& R& _* jYou 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.

: e* z1 {0 A' Z4 L; `2 y: H* nIf home prices are rising much faster than rents, as is true in Los Angeles, that’s a strong indication a bubble is forming.
& J& c1 A! P9 l* w
If home prices are rising while average rents are falling -- which is the situation in San Francisco -- the bubble is pretty much unmistakable.

Home P/E ratios for 9 metro areas
Avg. 1988-2000 2001
; U1 q4 B, \# Y! O- L8 ?: TBoston  20.5 30.2
San Diego  22.8 29.7
! [1 j  d7 \. Z; M0 P4 |7 {San Francisco  23.8 27.2
Los Angeles  21.3 25.6
+ {6 Z" f  S9 T. }. l2 F( q; bSeattle  20.4 25
9 ^+ P, c6 @/ uDenver  17.7 23.7
New York  21.2 22.5
Chicago  17.2 20.8
Washington, D.C.  17.1 20.4
) Y- y" Z4 M0 c5 i( X
) I9 e$ v( B/ ]
( Z) U; M0 Q7 ]  x4 ^- X! o
It'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.
! r# ~: Q0 s* P$ g+ W2 l1 @; s9 w

- z- g4 j# C. ?1 ?/ ]) eFrom: 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.

/ I. m# V, X% F3 L6 q) D7 _it would be a good reference.

( T% |) `  d6 sthanks

醉酒当歌

20% buble at least. And it can take 3-5 years to digest the bubble if not burst.

[ 本帖最后由 醉酒当歌 于 2007-1-14 16:41 编辑 ]