A Residential Real Estate Bubble?
(New Article Each Month

Residential real estate across the country has enjoyed a tremendous Bull Run since the beginnings of the Bear Market in the US stock market in 2000. In fact it can be argued that the wave of refinances, and home buying has been the chief factor in not having the US economy slip into a deflationary spiral similar to the 1930s. 

However, even the best parties come to an end, and it is likely that the real estate market has seen its better days. 

Just as  the stock market has a gauge for measuring the value of companies based upon the ratio of price to earnings, one can view real estate with the same perspective. We can call this the Price to Rent Ratio. Just like the Nasdaq, which went into unchartered waters in the late 1990's, real estate has now entered into never before seen levels of valuation. 

The chart shows the top of the real estate market in 1989 with a ratio of 1.33, which resulted in a multi year depressed real estate market . Currently the ratio is approaching an extreme 1.45 reading and is in high relativity  versus its historic baseline. Renters are actually getting the most house for the buck ever these days! 

What will be the starting catalyst of a real estate bear market? When interest rates finally start moving back up, buyer beware and keep your powder dry. 



Copyright 2003 Lussenheide Capital Management