This Will End The Housing Bubble
While discussions about U.S. housing prices are common, another crucial aspect of the housing market often goes unnoticed: rent. For those who don’t own their homes, renting is the necessary alternative, and historically, the relationship between sale prices and rents has been remarkably consistent. This ratio has shown a clear pattern when analyzed.
The sale price-to-rent ratio has generally been stable, but deviations from this trend have typically foreshadowed market corrections. For example, the ratio stood at 93 in 1970, fluctuating modestly throughout the 1980s and 1990s. However, in the late 1990s, this ratio began to rise sharply, indicating that housing prices were outpacing rents significantly. This disparity continued into the 2000s, culminating in the housing market crash of 2007, where a dramatic correction in housing prices occurred.
These statistics underscore a clear relationship: when the sale price to rent ratio strays significantly from historical norms, it often signals a pending adjustment in the market. So is this where we are headed?
Paper
https://www.frbsf.org/research-and-in...
Bill McBride Substack
https://calculatedrisk.substack.com
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