Doctor Housing Bubble writes:
It is rare to find any city in the United States that didn’t have a taste of the housing bubble. Some dabbled in it. Some indulged in it. California as a state gorged itself on the housing mania and is now paying the price of relying too much on a bubble for the source of economic growth. Some cities especially many in the Inland Empire have corrected and are showing signs of more affordable home prices. Yet affordability also relates to the local area economy. Take a look at Detroit and home prices there. They are cheap but for a reason and this can be explained by economics. If you ask people in Culver City to justify home prices you will get some emotional response that has very little connection to market fundamentals.
For example, throughout the country a really quick and dirty rule of thumb is a home is a good deal if it sells for 100 times the monthly rental rate. For example, a home that rents out for $1,500/per month is a good deal at $150,000 or less. As investors, you look for these kinds of disequilibrium. A good investor would look for an area where rents were high relative to home prices. For example a home that would rent for $2,000 selling at $150,000. These deals were hard to find prior to the bubble and once real estate got juiced, many forgot about the basic fundamentals. We are slowly going back to them.
