LS, glad you find the analysis helpful. To get a sense of the ratio for 1/2 BR places, I’d need historic data on 1/2 BR homes, but I don’t have that. I just have historic data on the median price of resale homes, which includes small and large homes.
I think that DataQuick has historic condo data, which would be a good proxy for 1/2 BR homes, but such data isn’t cheap (~$250).
Having said all that, I can think of no reason why a 1/2 BR would have a higher P-to-AR ratio than the full range of resale homes; it would be unsustainable, given the ability to get a higher return on a 3/4 BR house by folks who are rational investment property managers.
Excellent calculations, FSD.
Bugs, I think we’re going to have depressed demand (recession/depression). I think that nominal rents may go up for awhile, maybe years (that’s why I’m in gold), but real rents are going down, IMO, given the exodus of people and jobs. I feel comfortable that we’ll see 8-12X.
My father-in-law has been a San Diego real estate investor since the ’70s, and he uses 8-10X for his calculations. He’s seen 8-10X before in commercial properties (apartments, strip malls, industrial parks), and I don’t see why residential would be any different (see SE’s fine explanation on how, over the long haul, money moves, affects prices, and equalizes risk-adjusted returns).
