[ltokuda]

I think you might be onto something, but I am having trouble understanding this…

ratio = price / rent

What numbers specifically do you use for the graph? Median prices? Annualized median rents? How come your ratio is below 1?

Sandi, for the price index numbers, I got the data from http://www.irrationalexuberance.com.  For the rent numbers, I got the data from http://www.bls.gov/data/home.htm.   To get the ratio, I just divided those numbers for each year.

The price numbers represent the median house price but do not tell you the actual $ amount.  So a single price number by itself doesn't really tell us anything about how much a house costs.  But when you graph a series of these numbers over time, it shows you how prices have changed over the years.

The same is true with the rent numbers.  The rent numbers represent the median rent price but do not tell you the actual $ amount.  I only use this data to see how rent prices have changed over time.

The ratio (price/rent) is also meaningless if you just look at a single value.   What's important here is to look at how that ratio has changed over time.

[ltokuda]

I think you might be onto something, but I am having trouble understanding this…

ratio = price / rent

What numbers specifically do you use for the graph? Median prices? Annualized median rents? How come your ratio is below 1?

Sandi, for the price index numbers, I got the data from http://www.irrationalexuberance.com.  For the rent numbers, I got the data from http://www.bls.gov/data/home.htm.   To get the ratio, I just divided those numbers for each year.

The price numbers represent the median house price but do not tell you the actual $ amount.  So a single price number by itself doesn't really tell us anything about how much a house costs.  But when you graph a series of these numbers over time, it shows you how prices have changed over the years.

The same is true with the rent numbers.  The rent numbers represent the median rent price but do not tell you the actual $ amount.  I only use this data to see how rent prices have changed over time.

The ratio (price/rent) is also meaningless if you just look at a single value.   What's important here is to look at how that ratio has changed over time.

[ltokuda]

jpinpb, the data used in the chart was not adjusted for inflation. I just did a straight calculation:

ratio = price / rent

So, yes, relative to rents, house prices have gone up a lot since 1940. But note that price/rent ratios have stayed stable for long periods of time. It stayed at 0.4 for 30 years from 1940-1970. Then it stayed at 0.5 for another 30 years from 1970-2000. So the ratio seems to have gone up in steps. I’m not sure if we’re reaching a new step, though. That’s what I’d like to find out.

[ltokuda]

jpinpb, the data used in the chart was not adjusted for inflation. I just did a straight calculation:

ratio = price / rent

So, yes, relative to rents, house prices have gone up a lot since 1940. But note that price/rent ratios have stayed stable for long periods of time. It stayed at 0.4 for 30 years from 1940-1970. Then it stayed at 0.5 for another 30 years from 1970-2000. So the ratio seems to have gone up in steps. I’m not sure if we’re reaching a new step, though. That’s what I’d like to find out.

[ltokuda]

jpinpb, the data used in the chart was not adjusted for inflation. I just did a straight calculation:

ratio = price / rent

So, yes, relative to rents, house prices have gone up a lot since 1940. But note that price/rent ratios have stayed stable for long periods of time. It stayed at 0.4 for 30 years from 1940-1970. Then it stayed at 0.5 for another 30 years from 1970-2000. So the ratio seems to have gone up in steps. I’m not sure if we’re reaching a new step, though. That’s what I’d like to find out.

[ltokuda]

jpinpb, the data used in the chart was not adjusted for inflation. I just did a straight calculation:

ratio = price / rent

So, yes, relative to rents, house prices have gone up a lot since 1940. But note that price/rent ratios have stayed stable for long periods of time. It stayed at 0.4 for 30 years from 1940-1970. Then it stayed at 0.5 for another 30 years from 1970-2000. So the ratio seems to have gone up in steps. I’m not sure if we’re reaching a new step, though. That’s what I’d like to find out.

[ltokuda]

jpinpb, the data used in the chart was not adjusted for inflation. I just did a straight calculation:

ratio = price / rent

So, yes, relative to rents, house prices have gone up a lot since 1940. But note that price/rent ratios have stayed stable for long periods of time. It stayed at 0.4 for 30 years from 1940-1970. Then it stayed at 0.5 for another 30 years from 1970-2000. So the ratio seems to have gone up in steps. I’m not sure if we’re reaching a new step, though. That’s what I’d like to find out.

[ltokuda]

Thanks for the heads up, nostradamus. I added vertical lines every decade to make it a little easier to read.

[img_assist|nid=7139|title=Update: Historic National Housing Price vs. Rent Ratio|desc=|link=node|align=left|width=466|height=354]

[ltokuda]

Thanks for the heads up, nostradamus. I added vertical lines every decade to make it a little easier to read.

[img_assist|nid=7139|title=Update: Historic National Housing Price vs. Rent Ratio|desc=|link=node|align=left|width=466|height=354]

[ltokuda]

Thanks for the heads up, nostradamus. I added vertical lines every decade to make it a little easier to read.

[img_assist|nid=7139|title=Update: Historic National Housing Price vs. Rent Ratio|desc=|link=node|align=left|width=466|height=354]

[ltokuda]

Thanks for the heads up, nostradamus. I added vertical lines every decade to make it a little easier to read.

[img_assist|nid=7139|title=Update: Historic National Housing Price vs. Rent Ratio|desc=|link=node|align=left|width=466|height=354]

[ltokuda]

Thanks for the heads up, nostradamus. I added vertical lines every decade to make it a little easier to read.

[img_assist|nid=7139|title=Update: Historic National Housing Price vs. Rent Ratio|desc=|link=node|align=left|width=466|height=354]

[ltokuda]

I think falling interest rates will have a very limited effect. I think the bigger issue these days is the down payment. When home prices were rising, home owners could sell their house and use the profits as a big down payment on a bigger house. Now that house prices are dropping, the supply of down payments is shrinking as well. My guess is that the money supply is shrinking at a much faster rate than the lowering of interest rates can compensate for.

On top of that, tighter lending standards are demanding a higher percentage down payment. So even though interest rates have been dropping, the cost of securing a loan has been going up.

Of course, I’m just talking about this on a macro level. I’m sure there are situations out there where a bank loan will get approved based on the lower interest rate, but would have gotten rejected otherwise. There’s always going to be cases like that. For those people a 0.5% interest rate cut might make all the difference in the world. House prices will fall just a little less quickly because of it. But I just don’t see it making a huge difference overall.

[ltokuda]

I think falling interest rates will have a very limited effect. I think the bigger issue these days is the down payment. When home prices were rising, home owners could sell their house and use the profits as a big down payment on a bigger house. Now that house prices are dropping, the supply of down payments is shrinking as well. My guess is that the money supply is shrinking at a much faster rate than the lowering of interest rates can compensate for.

On top of that, tighter lending standards are demanding a higher percentage down payment. So even though interest rates have been dropping, the cost of securing a loan has been going up.

Of course, I’m just talking about this on a macro level. I’m sure there are situations out there where a bank loan will get approved based on the lower interest rate, but would have gotten rejected otherwise. There’s always going to be cases like that. For those people a 0.5% interest rate cut might make all the difference in the world. House prices will fall just a little less quickly because of it. But I just don’t see it making a huge difference overall.

[ltokuda]

I think falling interest rates will have a very limited effect. I think the bigger issue these days is the down payment. When home prices were rising, home owners could sell their house and use the profits as a big down payment on a bigger house. Now that house prices are dropping, the supply of down payments is shrinking as well. My guess is that the money supply is shrinking at a much faster rate than the lowering of interest rates can compensate for.

On top of that, tighter lending standards are demanding a higher percentage down payment. So even though interest rates have been dropping, the cost of securing a loan has been going up.

Of course, I’m just talking about this on a macro level. I’m sure there are situations out there where a bank loan will get approved based on the lower interest rate, but would have gotten rejected otherwise. There’s always going to be cases like that. For those people a 0.5% interest rate cut might make all the difference in the world. House prices will fall just a little less quickly because of it. But I just don’t see it making a huge difference overall.

[Author]

Posts