Is Your Real Estate Market Overvalued or Undervalued? - where to buy bubble soccer
After a sharp fall in house prices following the bursting of the property bubble, prices now seem very attractive.Now seems like a good time to buy, but what if the price drops further?Is there a good way to tell if your region is overvalued or undervalued?Judging whether the real estate market is overvalued is not so much science as art.Economists spend a lot of time and effort calculating data to try to determine whether a market is overvalued or undervalued and where prices may go in the future.
However, renting a house is a fairly convenient method for ordinary buyers and does not require an economics degree.It just compares the local rent to the mortgage cost of comparable properties.The beauty of this approach is that it automatically calculates variables such as income and relative demand, and generates a simple number as a good rule of thumb for local real estate prices.
The key number here is 15.
Historically, annual mortgage payments, including interest, are about 15 times higher than the monthly rent of comparable properties in the same region.If this ratio is higher than this, it suggests that the market may be overvalued.Lower, the market may be undervalued and offer good bargains.
This ratio is based on the assumption that 30-Annual fixed rate mortgage at current interest rate.To calculate the price of your area, take the typical price of the house you are interested in, and then compare it to an apartment or other rental with the same number of bedrooms, similar facilities and quality of life.Let's say 10% down payment and 30-Annual interest rate.
You can use the online mortgage calculator, such as the one provided on the mortgage website, to help you calculate the cost of your annual mortgage.If the ratio is 15 or less, it indicates that the market is relatively stable and it is unlikely to fall significantly further.The ratio of 20 or more indicates that the market may still be overvalued and may fall further.
Some areas that have experienced some of the biggest price declines in recent years still show higher rates of house prices.Prices in the Los Angeles and San Francisco markets are still above 30.Keep in mind, however, that historically densely populated areas have higher housing values, so prices tend to be higher than rent rates.
There are many ways to determine typical house prices and rents.There are many large companies that offer national sales prices, but these companies tend to deal with the average and means of prices for all houses, not just those in the categories you are interested in.The best way might be to simply check your local listings of real estate and rentals online and compare properties like the community.
Some real estate companies also track their local average rent and house prices-Search for "average rent/house prices" under the name of your community to try to find them.It's not accurate, but you're just looking for a rule of thumb here.Again, this is not an easy way, but at the very least let you know how stable the price is in your area.
This is another piece of information to consider when deciding whether to buy a house or not.To get pre-ToScott is a financial professional with more than 18 years of experience in the mortgage and debt relief industries.He has written a lot about debt relief and mortgage financing.