WASHINGTON – Housing prices are far outstripping salary increases for low- and moderate-income jobs, putting the American dream of owning a home beyond the reach of teachers, firefighters and other community workers in many cities, said a study being released Tuesday.
In an amazing conference call on Real Estate Market Timing with Robert Campbell, he shared a method to calculate a creative real estate p/e ratio.
Basically it’s the very points made in this paragraph. To determine the creative real estate p/e you take the most common home price and divide by the average household income in the same area.
As this ratio gets high, real estate prices show signs of over valuation.
In fact, since loans often require a housing debt to income ratio of 25 to 33%, a creative real estate p/e much above 3 starts to become unaffordable. Wow…
“It’s creating this dynamic where people who work these jobs must feel like they’ll never catch up. The dream of home ownership may be unattainable?… she said.
Now this is the sign of the start of an opportunity.
What we as creative real estate investors may do is figure out a way for people to still own homes. Would that be important?
However, here’s the challenge. How do we do this, while at the same time, getting a strong return for our company? After all, it’s price that is too high for these workers…and that’s even AT today’s low interest rates on real estate. Go ahead and add a comment with your thoughts on how we can do this.