Wednesday, November 26, 2014

Housing Price to Rent Ratio

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price (monthly cost to own)-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Calculated Risk has taken that formul a and developeda similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to February 2003 levels, the Composite 20 index is back to September 2002 levels, and the CoreLogic index is back to May 2003. However, all remain far below the peaks in the ratios during the housing bubble.

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