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There are multiple ways to value an asset other than its current price. One is cash flows: if you rented it, how much money would you get? Another is historical
by spoonjim 4y ago
There are multiple ways to value an asset other than its current price. One is cash flows: if you rented it, how much money would you get? Another is historical norms: if historically a city with N million jobs providing average income X can only support housing prices of Y, then one could conclude that housing is overpriced relative to the ability of people to pay for it.
- OrvalWintermute 4y agoThe HCOLA house my wife owns in which we live would rent for ~5,000 a month as it is inside our respective city beltway, in a good school district, in a low crime, historic area. When we got married $5,000 is pretty close to our much smaller apartment rental costs, summed. The vacancy rate is pretty low, and the demand is strong. Like all real estate calculations though, this is completely local.
- refurb 4y agoJust look at the price to rent index - 15 to 16 is neutral (renting and owning cost the same). San Francisco is currently 52. In HCOL areas, renting tends to be cheaper than owning because home price reflect not only cash flow, but expected appreciation as well. https://smartasset.com/mortgage/price-to-rent-ratio-in-us-cities https://smartasset.com/mortgage/price-to-rent-ratio-in-us-ci...
- scarface74 4y agoYou’re assuming that the people who buy house in an area work in the area. People who are able to work remotely statistically have jobs that pay more. They can live anywhere. A $700K house is a steal for even a mid level person working at BigTech who use to live on the west coast.