For Housing Prices, Follow Rents
Where were all of these articles 5 years ago and how did all of these great economists not stop this bubble from happening. Another gauge to look at is inflation because that is about how much home prices appreciate over time.
The gauge to look at is where rents are compared to mortgage payments. In normal times they are around the same. Deutsche Bank’s study found “that families across America were spending about 87% as much to rent as to own in 1999. Hence, they were traditionally willing to pay a premium as homeowners, though not a big one.” Right now the article points out that it costs 10% less to rent than to own a home.
It gets interesting. “But by mid-2006, with the craze in full swing, the figure fell below 60%. At that point, Americans were spending an incredible 66% more to own than to rent. It was far worse in the bubble markets”