America’s Most Expensive Neighborhoods

photo credit: Atwater Village Newbie

It’s good news if you’re selling, bad news if you’re buying: America is home to some seriously overpriced real estate. These neighborhoods, generally in ritzy areas of the country’s most sought-after cities, seem to defy the real estate market’s growing problems, increasing in value with no end in sight.

Among these pricey neighborhoods, you’ll find Seattle (zip code: 98104), Mission Hills (San Diego, zip code: 92103), and Coronado (Phoenix, zip code: 85006). Neighborhood costs were determined from price-to-earnings (P/E), which evaluates how much you pay for each dollar of return. In TriBeCa (New York), the P/E measures 36.3, the most expensive on the list.

Though high P/E’s are a good indicator of an overpriced investment, real estate experts explain that a low P/E does not always indicate a good investment. In fact, single-digit P/E rates are usually an indication of a weak investment. Such neighborhoods, like Detroit’s 7 Mile Road (P/E of 3), are rife with foreclosures and very low-income housing, which is hard to flip.

Good P/E scores occur in areas whose values are rising, where investors feels that prices will continue going up, thus providing them with a good return on investment. Such areas, like New York’s Upper East Side, are very expensive (townhouses go for $50+ million), but are not overpriced because they return equally high values. Overpriced neighborhoods, on the other hand, have inflated prices that don’t reflect their real value - when the bubble bursts, homeowners will be out of luck.

Before buying your next home, consider the neighborhood’s P/E, and think about whether an home is overpriced, or just a good investment.