She must mean 8 * annual income as another portion of her post says rents are a proxy for wages. From what I’ve read rents usually move with wages, but I don’t think that means you can substitute one for the other in the equation and keep the same multiplier. In other words, if you’re looking at the ratio between historic median home prices and historic median income, you can’t assume that ratio is the same for home prices to annual rent. Instead, you’ve got to look at the median price to median annual rent. That ratio may or may not be the same as the home price to income ratio.
For instance, one of the UCLA Anderson guys calculated historic averages of what he called “P/E” ratios for a number of cities from 1988 – 2000, including San Diego, by taking the median home price and dividing it by the annual rent for a two-bedroom unit in each city. San Diego’s average from 1988 to 2000 was 22.8. Now this ratio is probably inflated some because it sounds like he used apartments for the rental portion of his calculation, which I would expect to rent for lower amounts than a house all things being equal, but it shouldn’t be THAT far off.
