Thursday, October 31, 2013

The One Houisng Chart You Need

The Price-to-Rent ratio is the one housing statistic that tells you when home prices are getting out of line.  Below, borrowed from Calculated Risk, is a chart on historic Price-to-Rent ratio:

Price-to-Rent is the ratio of a home's cost to its rent equivalent, similar to a stock's price-to-dividend ratio.  For much of the '80s and '90s the ratio ranged from 1.0 to 1.2.  It started to rise in the early 2000s, and exceeded 1.8 at the housing peak.  The ratio dropped to under 1.2 with the housing collapse.  Price-to-Rent is increasing again as home prices rise, but is only at levels of the early 2000s.  Housing prices have been increasing for over a year, but it doesn't appear that the price rise is out of line.

1 comment:

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