bmarum – this is how we should be evaluating home valuations: as a multiple of rents. Leamer says in the article “San Diego’s current P/E is nearly 30, compared with a 1989 high of 23.4.” This model makes homes 21% overvalued. But with many homes already down 10-15%, I wonder how accurate this model can be for forecasting. If true, the San Elijo Hills homes have pretty much bottomed out already.
The problem may have to do with Leamer’s time of data gathering. The table shows the P/E ratio of San Diego was 29.7 in 2001, and the latest figure is “nearly 30”. It is difficult to believe that during the period of the highest runup, the years 2001 – 2005, the ratio went from 29.7 to 30. Something is definitely wrong there.
The P/E is the median home price/annual rent for 2BR apt
Using the other article you posted, this would give us, based on June 2006 data for San Diego County
$ 585,000 /$1442*12 = 33.8
Using today’s numbers, the home price/apt rent model would bring homes down 30%. (33.8 x .7 = 23.66)
For greater accuracy at estimating SFH prices, I would look at the historic rate of SFH rentals, not apartment rentals in my equation. I read on this forum that 4plexowner looked for properties priced a 8-12 times annual rent. We are much higher than that now. Anyone care to do that analysis? Many of us are renters. It should be easy to do.
