Housing prices still have a long way to go before they hit bottom, when you look at metrics like the ratio of home prices to rents according to this report (and graph) in the New York Times.
One reliable proxy of housing values — the ratio of home prices to rents — indicates that in many cities prices are still too high relative to historical norms. In Miami, for instance, home prices are about 22 times annual rents, according to analysis by Moody’s Economy.com. The average figure for the last 20 years is just 15 times annual rents. The difference between those two numbers suggests that a home valued at $500,000 today might be worth only $341,000 based on the long-term relationship between prices and rents. The price-to-rent ratio, which provides one measure of how much of a premium home buyers place on owning rather than renting, spiked across the country earlier this decade.
October 17th, 2008 at 8:04 am
I understand the reservations of lenders in today’s housing market but, frankly, my husband and I (with impeccable credit and stable income) had to all but promise our first-born child to our lender to qualify for a home loan that we could obviously afford. It’s no wonder the trouble is as it is now if everyone and their brother were being granted loans before. Seems to me that all these cautionary measures of double-checking and triple-checking assets and viability should have been put into place long ago… to insure against the people who really couldn’t afford what they wanted. “Living within your means” takes on new meaning today. That being said, if it weren’t for the short sales and foreclosures saturating the market, we wouldn’t have the home we have today.