Interesting points regarding rents Daniel. I know this probably isn’t exactly what you’re talking about, but one of the UCLA Anderson forecast guys, Leamer, analyzed the relationship between rent and median home prices in SD from 1988 to 2000. From the articles I’ve read, it looks like he compared the median value of a home with the annual rent for a two bedroom unit over the course of these twelve years. San Diego’s average P/E during that time was 22.8, i.e. the median house was on average 22.8 times the annual rent of a two bedroom unit. I have no idea what the data before 1988 looks like, or whether Leamer analyzed that.
Using Leamer’s data, and the most recent rental rate reported by the Union Tribune for a two bedroom unit, would give us a median home price of $394,531 ($1442*12*22.8). Certainly a good bit below the current median priced home, but not half of the current median. It is my understanding that in the short term the purchase market and the rental market move in opposite directions but that over the long term they move together. That is, that when the purchase market softens or drops, the rental market improves and vice versa, but that over the long term rents and prices both increase. Do I have that right? If so, it seems to me that as housing prices decline, rents will likely increase, which means we’ll get back to the trend line but some of the movement may come from rental increases and not all of it (althoug quite likely the vast majority of it) will come from price drops.
