I took a quick look. The reported Price/Rent ratios seem inflated. I would not have any confidence believing their metric of over-pricedness.
Take San Diego, for instance.
They computed a P/R = 34 as of June 2007.
I don;t have NAR median price of existing home for June, but I see that Sept was 593K.
593K/34 = 17441. This means 1453 per month.
No way a median priced home in San Diego rents for that cheap ! T
Take Clairemont, which is significantly below median price, somewhere around 500K. Those houses rent for about 2000 per month. This gives a P/R of about 21.
My guess is that their ratios are inflated both for the current situation and for the long-term average. Their general concept is correct. The quantitative predictions are suspect.
For what it’s worth, I think an additional 34% correction in San Diego’s nominal prices (not inflation adjusted) is too pessimistic. At some point, the media will be universally overly pessimistic to the downside.
