Price to Rent Ratio

If you want to assume that we will have the same credit conditions as 2004-2006 (i.e. bubble, low, easy access for all) then maybe 20x makes more sense than the lower historical average.

You say equilibrium I say two ships passing in the night.

99 to 04 clearly shows the effects of a tech boom, cheap money, and decreasing taxes.

BTW, where are all the "median" police?

And I am confused on why it is an equilibrium. Isn't it arbitrary on how the Y axis' are set up?

"99 to 04 clearly shows the effects of a tech boom, cheap money, and decreasing taxes."

Add to that improved standard of living, families staying in the city, decreasing dollar value, etc

"And I am confused on why it is an equilibrium. Isn't it arbitrary on how the Y axis' are set up?"

Not sure dcorr, good question. I looked at the chart for a while before posting and wondered the same thing. The Y axis' are scaled to 20x, if we scaled it to 10x or 30x would Q4 06 still overlap?

This is just silliness.

The chart leaves off the nineties when Price/Rent ratios were in the single-digits. Caveat emptor!

Equilibrium????? As the other poster pointed out, it's completely arbitrary. No wonder you are soooo confused all the time.

More noise from BSex, but no answers

who's my mommy? I'm confused too...please help me find my mommy

LOL - if "noise" is pointing out your stupid remark, then yes I am guilty.

Bsex, you are awfully testy for someone with a moronic investment strategy. Only and idiot would post his entire portfolio on streeteasy, have someone rightly criticize it, and then respond "I love volatility".

still no answers from BSex

"moronic investment strategy"

LOL - it's the same strategy as Buffett. Is he a moron as well?

Funny how you keep asking me for "answers", even though you think I am a moron. Answers to what, exactly?

"The Y axis' are scaled to 20x, if we scaled it to 10x or 30x would Q4 06 still overlap?"

That question

help me find my mommy...

Who cares if they overlap or not? It's irrelevant. If you want to find what the "equilibrium" for Price-to-Rent Ratios, you need to look at long-term historical averages, not a chart of the past 10 years.

The two Y axis', I believe, are unrelated. If the axis were not scaled, then they would obviously never cross. But because they are scaled to 20, they cross at 20

ahhhhhhhh the ancient chinese play with scale to get your outcome on a nice chart scam..... I'm not FOOLED...

JuiceMan shouldn't you be breastfeeding your kid?

JM - seriously, dude, you are a CLOWN. Hilarious that you consider ME to be the moron. LMAO.

...FWIW, I am now up 5.3% on the year, whereas the S&P is flat for the year. Imagine how well I would do if I didn't use a "moronic" investment strategy!

The idea of an equilibrium is a much more complicated and ambigous task. I would imagine you would have to come to some conclusion on what normal rental vacancy rates are, and what normal housing inventory is, and when they are both at their normal rates, I suppose that could suggest some sort of equilibrium, sort of analogous to the unemployment rate being at "equilibrium" at 5%.

A better equilibrium is probably just understanding when an investor would be indifferent to renting or buying, assuming certain credit conditions. At different times, there will be a premium to buying (people think of it as a good investment, people want comfort to be able to renovate, people prefer stability) and at other times a discount to buying (uncertainty of future market, uncertainty of income stream and job status, etc.). But when a pure investor can buy a property, rent it out, and make whatever return we find "normal," to offset opportunity cost, you have your equilibrim

that would hold if the investor were the marginal buyer. given that nyc co-ops, which compose well over 50% of the mkt, effectively prohibit investors, that isn't a valid supposition. and an investor and an owner occupier have, by specific design, different tax treatments.

for instance you could reasonably say that the muni bond mkt is in equilibrium when the effective pre-tax yield for someone in the 35% bracket is the same as the yield on a similarly rated, maturity, etc. taxable bond. however it would still be a poor investment for a non-taxed investor to buy them (for instance, you don't see people putting muni's in IRAs).

"Who cares if they overlap or not? It's irrelevant."

Hahahaahahahahahahhahahahahaaha

"FWIW, I'm am now up 5.3%"

Congrats on your $530 gain

You dont need to be an investor....if youre a high down payment buyer...I'd much rather fund my rent with bonds that are lower risk than real estate....at least until the cap rate > mortgage rate.

Sorry I missed this nonsense post when you originally put it up, JuiceMan.

What equilibrium? As mentioned above, it depends on how the chart is set up.

And as it happens, THE ENTIRE CHART is set up at 20:1 - every number on the left is 20x every number on the right. Therefore, when the price-to-rent ratio = 20, the lines will overlap.

OMG. How truly stupid.

20x never existed before 2004 did it? The "problem" here is interest rates...and how low interest rates have become society's entitlement....the great transfer to the wealthy.

useles chart--useless post

agree that equilibrium, or what is normal is quite difficult to define. However, in terms of this P to R discussion, didnt I say that this market should use a tweaked formula to make more sense?

18-22x rather than 12-15x annual rent multiplier perhaps?

Nah. This is a little like talking about what the new range for P/E multiples should be in 1999. Cap rates should > mortgage rates regardless of the rate environment. By my guess that still means P/R ratios should be about 15x right now. And we're really not far from that for a well priced Manhattan coop. It feels like coops are like 16-17x rent when well priced. If rents really are depressed, which is a reasonable argument, then we could be down to 15x in short order.

Alternatively, "new normal" P/Rs is an argument for new normal interest rate ranges (i.e. lower). I'll be curious to see what my landlord asks for this August. We're at $5k and similar lines seem to be moving at $6k...with one free month.

"New Normal" = "New Economy"

Remember that? The "New Economy"? As a way to justify infinite p/e multiples for dot.com start-ups with no earnings?

That, too, died a death.

Yeah new this or that is a joke... But there is something kinda new about the coordinated effort to keep rates low. Maybe they'll fail at it and we'll see single digit P/Es and P/Rs some day. Assuming a mortgage, I am with you wanted at most to pay sorta 15x rent. It doesnt appeal to me otherwise.

If you think 20x is the correct multiple you don't know how to read a chart. What do you think drove the 2005+ date? Not only low rate loans but EASY money loans. Neg am loans, no doc loans, no down payment loans etc. Yes rates are still low but money is MUCH harder to get. I would argue you need to take the average up until 2005 and you should go back prior to 1999 (dot com bubble year). You will likely get a multiple of 12-16x.

Now with rates low and massive quantitative easing multiples may stay up a bit. Either way 20 is silly.

"FWIW, I am now up 5.3% on the year, whereas the S&P is flat for the year. Imagine how well I would do if I didn't use a "moronic" investment strategy!"

Extremely convenient to leave out the period where several times the 5.3% was lost....

Too bad Juicy isn't enough of a man to admit that he's wrong - the crossing lines have nothing to do with "equilibrium," but rather with the fact that the chart is calibrated at 20x.

> "Who cares if they overlap or not? It's irrelevant."
> Hahahaahahahahahahhahahahahaaha

Actually, bsx is right. Juice is making an imaginary connection.

The two charts are on different scales. Change the scale and you can make different points overlap.

Sorry, juice, you just don't know how to read the chart.

Anyone remember Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market?

Published in 2000.

Now available from Amazon with prices beginning at $0.04.

I hadnt even realized what a stupid comment by juicy that was. Equilibrium hahaha. Two data sets plotted on one graph.

If juice's logic actually worked, we could solve any problem we ever wanted by coming up with two axes and plotting as we see fit...

Yes managing the conclusion by adjusting the scales of the axes.

On the right we have the Upper East Side Axis, on the left we have the Wayne New Jersey Axis, on the top we have the Albany New York Axis, and on the Bottom we have the Evil Axis.

ELVIS HAS LEFT THE BUILDING!

Disequilibrium junction...next stop, Long Island City.

Rhino, I'm a bit disappointed that you just today understood the reason you were directed to this thread, you must have scanned it too quickly the first time around. I hope it gives you a sense of who you might be arguing with, whether it be on SE or in the marketplace.

I must admit, Juicy undercut my expectations...and that is no small task. Yes the marketplace is clearly one where people like to buy what they want and pay what they can with whatever the bank will give them to spend.

I'm so disappointed in Juicy - not yet willing to admit his stupidity.

Oh I'm sorry - I didn't mean to say that.