Today, in the Real Estate Newsletter: Real House Prices, Price-to-Rent Ratio and Price-to-Median Income in September; And a look at “Affordability”
Excerpt (there is much more): 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-to-rent ratio using the OFHEO house price index and the Owners’ Equivalent Rent (OER) from the BLS.
Here is a similar graph using the Case-Shiller National and Composite 20 House Price Indexes. This graph shows the price to rent ratio (January 2000 = 1.0). The price-to-rent ratio had been moving more sideways but picked up significantly recently.
On a price-to-rent basis, the Case-Shiller National index is back to January 2006 levels, and the Composite 20 index is back to March 2005 levels.