A Residential Real Estate Bubble?
Bill Lussenheide
since the beginnings of the Bear Market in the US stock market in 2000. In
fact it can be argued that the wave of refinances, and home buying has been
the chief factor in not having the US economy slip into a deflationary
spiral similar to the 1930s.
However, even the best parties come to an end, and it is likely that the
real estate market has seen its better days.
Just as the stock market has a gauge for measuring the value of companies
based upon the ratio of price to earnings, one can view real estate with the
same perspective. We can call this the Price to Rent Ratio. Just like the
Nasdaq, which went into unchartered waters in the late 1990's, real estate
has now entered into never before seen levels of valuation.
At the top of the real estate market in 1989 the ratio of average monthly
mortgage versus average monthly rent was 1.33, well above the long term
average of 1.26. This resulted in a multi year depressed real estate market
until the middle of the 1990s. Currently the ratio is approaching an extreme
1.45 reading and is in high relativity versus its historic baseline.
Renters are actually getting the most house for the buck ever these days!
What will be the starting catalyst of a real estate bear market? When
interest rates finally start moving back up, buyer beware and keep your
powder dry.
Bill Lussenheide- An Invitation To Learn More-
http://www.InvestmentWarrior.com