Are Homes at Fair Market Value? - Annual Rent Valuation
Several blogs ago, I wrote about about different ways of calculating value, "Market Shows Signs of Good Relative Value".
Today I was reading several articles that highlighted historical valuations, based upon annual rents. One article mentioned that homes over the last 15 years have sold for 16.4 times the annual rent. Another article mentioned that said the number was 20times the annual rent. This second article said that at the peak of the market this number was more like 32 times.
If we take the example of a 3 bedroom 2 bath home in Los Altos that sells for $550,000 and rents for $2,500 per months, is this home fairly valued.
2,500 x 12 = $30,000
$550,000 / $30,000 = 18.3 times.
This is a number somewhere in between the 16.4x and 20x numbers referenced.
Does this mean that prices will not go down or even up. Heck no. But it is an indication that prices are much more likely to be stable in the Los Altos area of Long Beach.
Today I was reading several articles that highlighted historical valuations, based upon annual rents. One article mentioned that homes over the last 15 years have sold for 16.4 times the annual rent. Another article mentioned that said the number was 20times the annual rent. This second article said that at the peak of the market this number was more like 32 times.
If we take the example of a 3 bedroom 2 bath home in Los Altos that sells for $550,000 and rents for $2,500 per months, is this home fairly valued.
2,500 x 12 = $30,000
$550,000 / $30,000 = 18.3 times.
This is a number somewhere in between the 16.4x and 20x numbers referenced.
Does this mean that prices will not go down or even up. Heck no. But it is an indication that prices are much more likely to be stable in the Los Altos area of Long Beach.
Labels: Fair Value, Housing, long beach, Los Altos
posted by John Dumke at
4:53 PM
0 Comments
