Can Rents Determine the Housing Market?

What’s the easiest way to determine housing prices? Look at rents. In recent reports, “Deutsche Bank demonstrates how steady or even falling rents have pulled down housing prices, to the point where in many markets it costs about the same amount to own as to lease.” What does this all mean? Let’s break it down.

In general, people don’t want to pay much more to own than they would to rent. Why? Because renting doesn’t require mortgages or insurance, and if something breaks, guess what…you’re not going to pay for it, the owner is. So when rent goes down, housing prices must go down too.

It may not be the most widespread measure of housing prices, but if you want to follow a powerful driver, look at rents. Specifically, it’s the rents Americans pay on condos, apartments or houses that are about the same size, and share the same neighborhood as your ranch or colonial, that in the end determine what your house is worth.