As home prices rise at 20% annual rates in some areas, many wonder if residential
real estate is falling prey to the same kind of wild speculation that
led to the stock market’s spectacular downfall.
The answer, says UCLA economist
Edward Leamer, is yes — at least in many high-octane markets around
the country such as San Francisco, Boston
and San Diego. [Don't
get trapped in a housing bubble]
That MSN Money column describes the use of a Price-to-Earnings ratio
[P/E] for homes in a market, and concludes that the P/E's are dangerously
a number of areas of the country.
The same conclusion is reached for a different reason (Greenspan did it) in
a column in the Los Angeles Times:
After his failure regarding the largest financial bubble in the history
of the world, it looks like Greenspan is now actively promoting the world's
bubble: the housing market.
The basic story is simple: Over the last eight
years housing prices have outpaced the overall rate of inflation by
more than 35 percentage points. There is
no precedent for this sort of rise in home prices. In the past, home
prices largely kept even with the general rate of inflation.
Studies have shown that, historically,
rents and home prices have appreciated together. In other words, underlying
factors will drive up home sale prices and rental prices by roughly
the same amount. The rental markets tell a different story.