Variation in Local House Price–Rent Ratios

Abstract

Abstract The price–rent ratio is commonly used as an indicator of housing value. New data sources remove previous technical limitations on ratio construction and use, providing information on a monthly basis at the town, neighborhood, and ZIP Code levels. In this study, I explore the new data and find significant variation in price–rent ratios found across local markets that is correlated with local property tax rates, household income, and age. This work should encourage further study on cross- market ratio analysis, as well as the development of local indices to more effectively assess the possibility that a specific local market may be underpriced or overpriced.