Today, in the Calculated Risk Real Estate Newsletter: Real House Prices, Price-to-Rent Ratio and Price-to-Median Income in December
Excerpt: 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.
Note that OER is lagging behind other measures of recent rent increases.
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 at a record high, and the Composite 20 index is back to June 2005 levels.
By all of the above measures, house prices appear elevated.