Given Rent Prices, Homes Still Too High

Expect another 15% drop if historical relationship holds
By Kevin Spak,  Newser Staff
Posted Jan 3, 2008 10:21 AM CST
Given Rent Prices, Homes Still Too High
A for sale sign stands outside a home on the market in a neighborhood south of downtown Denver on Tuesday, Dec. 25, 2007. The upside to a housing slump is cheaper homes. But with housing prices just beginning to slide, many prospective buyers don't see bargains yet. (AP Photo/David Zalubowski)   (Associated Press)

(Newser) – If rent prices are any indication, home prices aren’t done falling, according to one former and two current Federal Reserve economists. Annual rents have historically held steady at about 5% of home prices, but since 1996 home prices have left rents in the dust, the Wall Street Journal explains. Housing would need to fall 15% over five years to restore order.

That number assumes that rents will increase about 4% each year, but their actual growth may be even slower if homeowners start renting out the glut of unsold houses on the market. Fed policymakers may or may not agree with the report, but the same methodology has been used many times, and the Congressional Budget Office reached similar conclusions. (Read more housing market stories.)

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