You might be interested in a widely cited report by the Center for Economic Policy and Research. Please visit the following link:
http://www.cepr.net/index.php/publications/reports/the-changing-prospects-for-building-home-equity
An interesting aspect of this report is the Rule of 15. This rule-of-thumb defines a normal (non-bubble) residential housing market as home prices that are approximately equal, or less, than 15 times the annual gross rent. For example, the average rental rate in Arlington is roughly $850 per month or $10,200 per year. $10,200 times 15 would indicate an average residential property value of about $150,000, which corresponds to the actual average residential transaction price in Arlington, Texas --> Not a bubble.
However, in some other areas of the country, we have witnessed a great divergence between the residential rental market and transaction prices (these are the "Bubble" markets). This report defines a bubble as locations where the average transaction price is 18 or more times greater than the average annual gross rent. Most of these bubble markets are located on the West Coast and the Northeast. Check out the report for more details.
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