Here are the top ten most over priced real estate markets according to Forbes:
- San Diego – $601,800 (mhp)
- Miami – $371,000 (mhp)
- Sacramento – $ 374,800 (mhp)
- San Francisco – $736,800 (mhp)
- Washington D.C. – $431,000 (mhp)
- Honolulu – $630,000 (mhp)
- New York City – $469,000 (mhp)
- Los Angeles – $584,000 (mhp)
- Boston – 402,200 (mhp)
- San Jose – $775,000 (mhp)
As you can see, Miami has the lowest median home price yet it is number two on the list. Why, then, is Miami’s market the second most over priced market in the U.S.?
Here is the way Forbes formulated their list:
- Using the 40 largest metro areas, we started by estimating a “price-to-earnings” ratio for each market. (Like the P/E of a stock, this value attempts to measure the price a homeowner would pay for one dollar of return.) Using data from the National Association of Realtors (NAR), the U.S. Census Bureau and the Office of Federal Housing Enterprise Oversight, we took each market’s median home price and divided it by annual rents minus taxes and insurance for those properties. (We assumed for this exercise that other costs don’t vary drastically from city to city.)
- We incorporated a second metric: an affordability index. Calculated from National Home Builder Association and Wells Fargo (nyse: WFC – news – people ) data, the affordability score is the percent of the population who can afford to buy the median-priced home, assuming a 6% mortgage rate.
Miami is, according to Forbes, a “usual suspect” in this respect. Frankly, Forbes left something rather important out: the Greater Miami Area. Yes, all 5 million plus residents of it. Here is the difference in median household incomes between the County and the City not including higher MHI in Palm Beach and Broward counties: