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Tuesday, December 11, 2007

The housing bubble reminds me of An Inconvenient Truth

Basically, if housing prices get too high, people shouldn't be buying houses because renting will be cheaper. The linked chart shows the ratio of housing prices to rental prices, a measure of the imbalance in the residential market. The tail end we're on reminds me of the global carbon increase chart that Al Gore required a hydraulic lift to illustrate. This bubble hasn't begun to burst.

3 comments:

Slummy said...

Yes, this is out of balance, but the common thought is that as more people go into the rental market the rent prices will increase. You can begin to see that in the table here: http://rentalrates.blogspot.com/. Places where the bubble is the worst (SF, OC, Las Vegas, etc) have significant increases in rental prices to get the ratio to a happier place.

Slummy said...

Another good story on apartment rents, though it is from usatoday and I should therefore be shot for using such a bad source. http://www.usatoday.com/money/economy/housing/2006-05-29-high-rent-usat_x.htm

Slummy said...

Busy day here at the office..okay, maybe not. And, this is very interesting to me given my work location.

This link is much better and describes why the ratio should change over time given taxation and policy changes. Most importantly, it is even able to explain the changes based almost entirely on future rental returns. If future growth was added the model was more accurate.

An interesting read...