Comments on: America’s Most Overpriced ZIP Codes

By: tomg

tomg — Mon, 19 Jan 2009 21:45:22 +0000

I have been looking at housing costs from the perspective that an entry level house (whatever entry level may be) should not cost more than a typical two-income family can afford. More than that for very long and the local housing market will likely struggle. Is this a valid way to gage whether a local market is correctly priced? Of course, what a family can afford is largely driven by down payment interest rates.

By: orditedobre

orditedobre — Sun, 24 Aug 2008 23:53:32 +0000

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By: marie.hagman

marie.hagman — Thu, 14 Aug 2008 19:16:49 +0000

Michele – I agree with you that the home prices are high, but they’re not more outrageous than NY, LA, SFO, etc. I think the prices represent the economic success of the region, opportunity and quality of life, and the demand for housing vs. the supply. My parents live in Austin Tx and the comperable homes there are half what you pay here at least… but they’ve also had 3 straight months of >100 degree weather :p

By: marie.hagman

marie.hagman — Thu, 14 Aug 2008 19:12:54 +0000

Here’s a good way to see what’s really available on the rental market: http://www.housingmaps.com/?c=seattle&t=apa&p=1000_1500

You can see what the rental options are in all the different price ranges and then compare those options to the homes for which the mortgage payments would be comperable.

By: Michelle

Michelle — Wed, 13 Aug 2008 23:46:47 +0000

I’ve, unfortunately, relocated to Seattle from Ann Arbor MI and I cannot believe the cost of many houses out here…WAY overpriced! Houses that are older than the Model T automobile are going for significantly more than a new/updated/’green’ house would go for. I didn’t exactly move from shanty town and I just can’t get it around my head how people have been convinced that these houses are worth as much as they are going for!! Please, someone enlighten me on why purchasers enjoy this gouging – other than the climate. Thanks…Michelle

By: Roland

Roland — Mon, 11 Aug 2008 17:30:41 +0000

I did read the article.

My point was that the so-called “P/E” ratio described in the article is close to meaningless, because it’s comparing apples to oranges.

Meaning…

Comparing homes to rentals. Comparing cities to suburbs. Etc.

I thought that was pretty clear. Sorry I wasn’t explicit enough, John.

By: John

John — Mon, 11 Aug 2008 15:33:18 +0000

Have you not read the article? What was your point?

By: Roland

Roland — Sun, 10 Aug 2008 00:36:42 +0000

You know what’s funny about this Forbes list? The same exact conditions existed 20 year ago, with largely the same cast of characters: NY, SF, LA, Boston… I think Seattle is a newcomer, and San Diego’s rise has probably been more gradual.

Dallas, San Jose … also old timers in this kind of analysis.

Which raises a question – what does this “P/E” mean? First of all, it’s *not* a true P/E, since the single family properties being sold are generally not being rented out. And, there are reasons for that, that I think would be obvious to most people who read this blog.

Does this “P/E” take into account subsidized housing? Rent control? Does it correct for quality of stock, or location? If it does take any factors into account, how does it do so? Etc.

The mix of housing stock in large cities is really different from that of the suburbs, or the countryside. You’ve got all kinds of people living next to each other: rich, poor, middle class, students, etc.

Our daughter lives in an apartment on CapHill, with rent of $1,000 per month. It’s a decent sized apartment, but it’s not got the layout of a similar sized condo, nor the features of such a condo, that might be sold for $500,000 in the same area.

Does this represent some kind of market failure, a wide “P/E” ratio? Not at all.

If the owner of the building wanted to go condo, they would experience a number of substantial costs: exiting the tenants resulting in loss of rents, design & permitting, substantial construction rebuild, etc. And so at the point where the condos ready to be sold – it wouldn’t be the same building anymore.

Isn’t this obvious?