Big Picture Week: Price to Rent Ratio • Seattle Bubble
(Orange is home ownership; purple is rent, both in growth since 1990, as a baseline of 100.)
The near-perfect correlation of the two lines between 1990 and 1997 is what I would expect to see in a normally-functioning economy. The insane divergence of the last ten years or so is slowly correcting, and I believe it will continue to do so now that you can no longer get free money for buying a home.
Based on this comparison to rents, I estimate that Seattle home prices still have another ten to twenty percent yet to drop before they line back up with the economic fundamentals. What’s your take?
