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
1. San Diego
3. Sacramento, Calif.
4. San Francisco
5. Washington, D.C.
7. New Jersey
8. Los Angeles
10. San Jose, Calif.
Least Overpriced Markets
1. Charlotte, N.C.
3. Raleigh, N.C.
5. St. Louis
10. El Paso, Texas
(Okay, I’m kind of confused by the “least overpriced” list – so is every metropolitan market overpriced, or is there also a separate list of “most underpriced” somewhere? Regardless, take solace in the fact … we’re not San Diego! Yay!)
Source: 10 Most Overpriced Markets – By Matt Woolsey, Forbes, by way of Realtor.org
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