A prospective buyer explores a concept called the “Rent Ratio” in a recent N.Y Times article, which he describes as the real estate market’s version of the stock market’s p/e ratio- a measure of how expensive an asset is, relative to the underlying economic fundamentals. This is done by finding a similar house for sale and for rent (or better yet, the same house) and dividing the sales price by the annual rent. Throughout the 1970’s, 80’s, and ’90s, the average rent ratio nationwide hovered between 10 and 14.  In the last few years, though, it broke through that historical range and hit almost 19 before the market peaked in 2006, the premise being that a rent ratio above 20 means the monthly costs of ownership will exceed the cost of renting.*

 

I tried a quick test of my own and calculated the rent ratios of 5 houses currently on the market simultaneously for sale and rent in Rye of various price ranges and styles, and the rent ratios ranged from 12.76 to 16.47 (my own listing at 9 Eldredge Court being 12.76).  Is it finally time to buy? If you are interested, CLlCK HERE to compare the costs of renting or buying equivalent homes from a June 2008 N.Y. Times interactive calculator- email me and let me know what you think!