Is there a relationship between home value and the price of rent?

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anilinet2k_IHB

New member
Hello All,





I am a renter in LA and have been wondering about the question above. One of my brother in laws is a real estate agent and he is extremely bullish when it comes to buying a home (for obvious reason).





A few years ago he was pressuring me to buy because the value of the home or condo could go no where but up. Now a days he is still saying the same thing but now the reasoning he presents goes something like, "Folks have stopped buying and are choosing to rent instead, therefore rent prices are going to rise sharply. In order to escape this sharp rent price increase I should purchase a home/condo -- ride out the temporary dip in price and sail into equity nirvana." Actually, I have heard this line of thinking from other friends and family who own multiple homes (residence and rental properties). Though I have not seen anyone of them hike up the rent yet -- they are certain that rents will rise, and they will profit from it.





On the other hand a few of my renter friends have started seriously looking and/or buying properties ( a recent purchase by a friend of a condo listed for 629K was sold for 551K). I have no idea if this is a much larger pattern or not but it is something I am noticing amongst my friends. I imagine of this happens on a larger scale then the pool of rental inventory will increase and there will remain a strong downward pressure on rent price.





Is there a real relationship between home values and rent price? What is the nature of the relationship ? Or is there no relationship at all and this the REIC is simply creating a marketing point to keep home owners interested?
 
<p>I see you are new to this forum, welcome! There has been a lot of discussion with the relationship with rents vs price ratio. You will probably have to do a search to find that stuff. People here have discussed that if you take current the current rent price for a particular property and multiple it by 160 (some go by 200) you should come up with what the price that is more in line with rental rents. For example, a rental property that is $2,000 per month should be worth around 320,000 (give or take) if prices weren't so over inflated. </p>

<p>dayday</p>
 
Start here:


<a title="Permanent Link to How Inflated are House Prices?" rel="bookmark" href="http://www.irvinehousingblog.com/2007/03/03/how-inflated-are-house-prices/" set="yes">How Inflated are House Prices?</a>

The reasoning of your friends is fatally flawed. They are saying that the number of renters will increase without the number of rental units increasing. There are a lot of desperate flippers out there. When they give up on selling their overpriced houses, they will put it on the rental market to stop the monthly cashflow drain. This will increase the number of rentals in the inventory and drive rents down. When somebody who was renting buys, there is one less renter in the marketplace, just as when someone who was owning rents, there is one less homeowner in the marketplace. This keeps everything in balance.





Basically, their line of BS sounds just plausible enough to dupe a few renters into becoming bagholders for the big drop. Don't be one of them.
 
IR's article is a great place to start. To be brief, yes, there is a relationship between house prices and rent. Suffice it to say that as of right now, that relationship is skewed significantly towards the housing side. Meaning, housing prices are significantly higher than rent right now.
 
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