Quote:
Originally Posted by Red
Normally 100 x rent payment defines house value. That's how it's always been.
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Much like purchase price to income ratios, that's completely dependent on interest rates at a given time.
Using a 100:1 ratio, a house that rents for $2500 a month should only be worth $250,000. Yet even with zero money down, you could buy that house right now for a mortgage payment of about $1100. That would never happen because if people could buy houses for less than half the price of renting then barely anyone would rent.
A 100:1 ratio makes sense when you're talking about 7-9 % interest rates, but not right now. High prices are being fueled by historically low interest rates that are throwing most of the old adages and benchmarks out of whack. Conversely, high interest rates in the early 80s made a 100:1 ratio a terrible investment.