Chart of the Day: We Might Be Starting Up a New Housing Bubble

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.


My favorite indicator of out-of-whack housing prices has always been the price-to-rent ratio. The rationale behind keeping an eye on it is pretty simple: rent is basically the return you get from investing in a home, so if the price of buying a home goes way up but the rent doesn’t, it means the return on investment from housing is declining. However, the only reason to make an investment with a low return is because you’re betting that the value of the home itself will keep rising, and at some point that simply makes no sense. Why should the value of a home keep rising if it remains a low return investment? Basically, you’re betting on a bubble.

The chart below, from Calculated Risk, shows the price-to-rent ratio (indexed to 1998 = 1.0) for the past few decades. Obviously things got way out of control from 2002 through 2006, and by 2012 it looked as though average house prices had retreated to reasonable levels. However, for the past 18 months the price-to-rent ratio has been rising fairly sharply. It’s too early to say that we’re in any kind of danger zone yet, but it’s worth staying vigilant. Given the weakness of the recovery and the weakness of income growth, it’s hard to think of too many good reasons that home values should be outpacing rents by very much.

We've never been very good at being conservative.

And usually, that serves us well in doing the ambitious, hard-hitting journalism that you turn to Mother Jones for. But it also means we can't afford to come up short when it comes to scratching together the funds it takes to keep our team firing on all cylinders, and the truth is, we finished our budgeting cycle on June 30 about $100,000 short of our online goal.

This is no time to come up short. It's time to fight like hell, as our namesake would tell us to do, for a democracy where minority rule cannot impose an extreme agenda, where facts matter, and where accountability has a chance at the polls and in the press. If you value our reporting and you can right now, please help us dig out of the $100,000 hole we're starting our new budgeting cycle in with an always-needed and always-appreciated donation today.

payment methods

We've never been very good at being conservative.

And usually, that serves us well in doing the ambitious, hard-hitting journalism that you turn to Mother Jones for. But it also means we can't afford to come up short when it comes to scratching together the funds it takes to keep our team firing on all cylinders, and the truth is, we finished our budgeting cycle on June 30 about $100,000 short of our online goal.

This is no time to come up short. It's time to fight like hell, as our namesake would tell us to do, for a democracy where minority rule cannot impose an extreme agenda, where facts matter, and where accountability has a chance at the polls and in the press. If you value our reporting and you can right now, please help us dig out of the $100,000 hole we're starting our new budgeting cycle in with an always-needed and always-appreciated donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate