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Check this link, or read on below...
http://money.cnn.com/2007/11/06/real_estat...sion=2007110711
(Fortune Magazine) -- You can`t blame America`s homeowners for feeling hopelessly confused. From suburban porches and city terraces, they`re gawking at a housing world gone mad. Just 18 months ago, folks on a tony Linden Lane or a leafy Boxwood Court were astounded to see the colonial their neighbors bought for $600,000 in 2000 sell for $1.5 million after multiple bids. Now they`re just as bewildered to watch the same model across the street go begging for months at $1.1 million without a single offer.
The millions of Americans who believed yesterday`s happy talk about housing are now paying the price, from couples who stretched to buy second homes, to true believers who drove the Florida condo craze, to executives who can`t take that great new job in Charlotte without suffering a huge loss on the house purchased at the bubble`s peak in Sacramento.
Now that the gilded forecasts have proved spectacularly wrong, homeowners don`t know what to think about real estate`s future. The dizzying rise sure didn`t make sense. And the sudden slump doesn`t seem any more logical. How can you make reasonable financial plans for the future if you have no idea what your house is worth? Take a deep breath. We can`t tell you what your house would fetch tomorrow. But we can help you through the fog of whipsawing prices and vacillating views to develop a clear picture of what your house will most likely be worth in five years or so. Over long periods housing, like stocks and bonds, follows a set of economic fundamentals. No matter how far prices get unhinged in a speculative craze - and we`ve just witnessed a blowout - those basic forces eventually regain their grip.
25 real estate markets poised to fall Many factors determine the value of a house. A family would consider the quality of local schools, the number of bedrooms, the size of the yard. Economists assessing a region look at interest rates, employment, and population growth. But over time the most reliable guide to home values is rents.
In most markets people won`t lay out much more in monthly costs to own a house or condo than they would to rent a similar property unless they expect a huge profit when they sell. Indeed, speculators chasing quick profits did a lot to inflate the recent bubble.
But once the fervor fades, prices must fall to restore their normal, long-term relationship with rents. Rents exercise a kind of inevitable gravitational pull on prices. The ratio of prices to rents "behaves much like price/earnings ratios for stocks," says Yale economist Robert Shiller. "Like P/Es, price-to-rent ratios are mean-reverting." In other words, while prices soar from time to time, sending the ratio to exceptional heights, sooner or later the relationship is bound to return to its historical average.
So what are rents saying about home values today? To answer that question, Fortune worked with Moody`s Economy.com to estimate adjustments needed to get prices and rents back in balance. We`ll go into detail below, but the headline is gloomy: According to our calculations, prices in most markets will fall by double digits over the next five years.
For the rest of the article please click on the link above
http://money.cnn.com/2007/11/06/real_estat...sion=2007110711
(Fortune Magazine) -- You can`t blame America`s homeowners for feeling hopelessly confused. From suburban porches and city terraces, they`re gawking at a housing world gone mad. Just 18 months ago, folks on a tony Linden Lane or a leafy Boxwood Court were astounded to see the colonial their neighbors bought for $600,000 in 2000 sell for $1.5 million after multiple bids. Now they`re just as bewildered to watch the same model across the street go begging for months at $1.1 million without a single offer.
The millions of Americans who believed yesterday`s happy talk about housing are now paying the price, from couples who stretched to buy second homes, to true believers who drove the Florida condo craze, to executives who can`t take that great new job in Charlotte without suffering a huge loss on the house purchased at the bubble`s peak in Sacramento.
Now that the gilded forecasts have proved spectacularly wrong, homeowners don`t know what to think about real estate`s future. The dizzying rise sure didn`t make sense. And the sudden slump doesn`t seem any more logical. How can you make reasonable financial plans for the future if you have no idea what your house is worth? Take a deep breath. We can`t tell you what your house would fetch tomorrow. But we can help you through the fog of whipsawing prices and vacillating views to develop a clear picture of what your house will most likely be worth in five years or so. Over long periods housing, like stocks and bonds, follows a set of economic fundamentals. No matter how far prices get unhinged in a speculative craze - and we`ve just witnessed a blowout - those basic forces eventually regain their grip.
25 real estate markets poised to fall Many factors determine the value of a house. A family would consider the quality of local schools, the number of bedrooms, the size of the yard. Economists assessing a region look at interest rates, employment, and population growth. But over time the most reliable guide to home values is rents.
In most markets people won`t lay out much more in monthly costs to own a house or condo than they would to rent a similar property unless they expect a huge profit when they sell. Indeed, speculators chasing quick profits did a lot to inflate the recent bubble.
But once the fervor fades, prices must fall to restore their normal, long-term relationship with rents. Rents exercise a kind of inevitable gravitational pull on prices. The ratio of prices to rents "behaves much like price/earnings ratios for stocks," says Yale economist Robert Shiller. "Like P/Es, price-to-rent ratios are mean-reverting." In other words, while prices soar from time to time, sending the ratio to exceptional heights, sooner or later the relationship is bound to return to its historical average.
So what are rents saying about home values today? To answer that question, Fortune worked with Moody`s Economy.com to estimate adjustments needed to get prices and rents back in balance. We`ll go into detail below, but the headline is gloomy: According to our calculations, prices in most markets will fall by double digits over the next five years.
For the rest of the article please click on the link above