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.

Not 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.

* o4 E$ u3 u# ~  ]To 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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  u: _8 y; a& E9 A3 p$ V& \In Boston, the residential real estate market’s P/E recently topped 30 -- compared with just under 20 in 1988.

1 I2 u( K: R- xSan Francisco’s previous peak of 25.6 in 1989 has been eclipsed, with the P/E currently at just over 27.
& d% f& U5 H1 n7 k6 eSan Diego’s current P/E is nearly 30, compared with a 1989 high of 23.4.
. V* r7 W3 y# K* N9 r# j+ G; HNew 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.
  o, A6 v( Q6 }% `. AYou 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.

& B9 i! }, V& S7 x) }If home prices are rising much faster than rents, as is true in Los Angeles, that’s a strong indication a bubble is forming.

If 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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Home P/E ratios for 9 metro areas
Avg. 1988-2000 2001
Boston  20.5 30.2
3 d1 [& @4 T, j% lSan Diego  22.8 29.7
: k. J  n1 I7 ^8 }% Q/ i! `; MSan Francisco  23.8 27.2
% h* @6 M8 z, I& r5 q& ]Los Angeles  21.3 25.6
Seattle  20.4 25
1 Z, Y6 I$ X- n3 R: _: w+ ~Denver  17.7 23.7
New York  21.2 22.5
& \8 e  K$ j+ Y) w, _# C' `, D6 ]+ jChicago  17.2 20.8
Washington, D.C.  17.1 20.4

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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.
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3 t6 ?( d( \1 e% I  gFrom: 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.

( b% L; n+ ^7 K4 z! C- nit would be a good reference.
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& O: \1 v- M  ]- s/ kthanks

醉酒当歌

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

0 {2 {* l& G+ z2 c" H6 N[ 本帖最后由 醉酒当歌 于 2007-1-14 16:41 编辑 ]