Real Estate Price Decline — Chart of the Day
Kurt Brouwer September 6th, 2008
Source: Calculated Risk
The term Owners’ Equivalent Rent comes from the Bureau of Labor Statistics. The BLS surveys home owners to determine what the owner believes he would have to pay (OER) if he were renting the same home. Then the homes sale price is compared to the price as a fixed multiple of the OER. The historical price to rent relationship is shown as the 1.0 line on the chart. Prices have fluctuated above and below this level for many years.
Starting around 2002, home prices went considerably above the 1.0-1.5 level. Now, prices have fallen quite a bit and they are approaching more normal levels. However, to get back to 1.0, home prices would have to fall more or they would have to remain flat for several years until OER creeps up bringing home prices into a more normal relationship between price and rental value.
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