Forbes magazine has calculated what it considers the most overpriced U.S. housing markets by estimating a “price-to-earnings” (P/E) ratio for each of the 40 largest metro areas.
Just like the P/E of a stock, this value attempts to measure the price a home owner would pay for $1 of return. It was figured by dividing each market’s median home price by annual rents minus taxes and insurance. The average P/E for the 40 markets is 28.
The magazine also incorporated a second metric. It calculated an affordability score based on how many residents pulling down a median income could afford to buy a property, assuming a 6 percent mortgage rate.
Based on these metrics, here are the 10 most overpriced cities and the 10 least overpriced:
Most Overpriced Markets
- San Diego
- Sacramento, Calif.
- San Francisco
- Washington, D.C.
- New Jersey
- Los Angeles
- San Jose, Calif.
Least Overpriced Markets
- Charlotte, N.C.
- Raleigh, N.C.
- St. Louis
- El Paso, Texas
Source: Forbes, Matt Woolsey (05/04/07)
Posted by: Seattle email@example.com
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