Felix Salmon has an article on the NAR’s revised figures on existing homes sole from 2007 to 2010. He goes on to hypothesis why the housing market recovery will continue to be slow.
A few of his points are:
- A very low mortgage rate means private sector will not lend – save for the government.
- The low interest rate also means that quite a bit of existing home sales are driven by speculations.
- An increase in mortgage rate (to normality) will mean that future homebuyers will have a more difficult time to buy homes.
These points are contentious and certainty subject to disagreement. But assuming everything he hypothesizes is true, then as speculation wanes – both speculators saddled with houses and existing homeowner with houses would try to sell their houses or rent them out. As Salmon points out, housing prices have a tendency to be sticky. In that case, I would expect to see more rentals, and thus the price to rent ratio to rise in the next few years.
Calculated Risk calculates the price to rent ratio from time to time (example here). This ratio has been declining for the past few years. However, the reason for the fall has likely been the fall in prices – whereas the rise in the future, assuming Salmon’s hypothesis is correct, will be due to the fall in rent.
Reference: Unreliable Housing Statistic Of The Day [Seeking Alpha]