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The Rent‐Price Ratio For The Aggregate Stock Of Owner‐Occupied Housing

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  • Morris A. Davis
  • Andreas Lehnert
  • Robert F. Martin

Abstract

We construct a quarterly time series of the rent‐price ratio for the aggregate stock of owner‐occupied housing in the United States, starting in 1960, by merging micro data from the last five Decennial Censuses of Housing surveys with price indexes for house prices and rents. We show that the rent‐price ratio ranged between 5 and 5.5 percent between 1960 and 1995, but rapidly declined after 1995. By year‐end 2006, the rent‐price ratio reached a historic low of 3.5 percent. For the rent‐price ratio to return to its historical average over, say, the next five years, house prices likely would have to fall considerably.

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  • Morris A. Davis & Andreas Lehnert & Robert F. Martin, 2008. "The Rent‐Price Ratio For The Aggregate Stock Of Owner‐Occupied Housing," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 54(2), pages 279-284, June.
    • Handle: RePEc:bla:revinw:v:54:y:2008:i:2:p:279-284
    DOI: 10.1111/j.1475-4991.2008.00274.x
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    1. Meese Richard & Wallace Nancy, 1994. "Testing the Present Value Relation for Housing Prices: Should I Leave My House in San Francisco?," Journal of Urban Economics, Elsevier, vol. 35(3), pages 245-266, May.
    2. David E. Lebow & Jeremy B. Rudd, 2003. "Measurement Error in the Consumer Price Index: Where Do We Stand?," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 159-201, March.
    3. Morris A. Davis & Robert F. Martin, 2005. "Housing, house prices, and the equity premium puzzle," Finance and Economics Discussion Series 2005-13, Board of Governors of the Federal Reserve System (U.S.).
    4. Theodore M. Crone & Leonard I. Nakamura & Richard Voith, 2004. "Hedonic estimates of the cost of housing services: rental and owner-occupied units," Working Papers 04-22, Federal Reserve Bank of Philadelphia.
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