Wednesday, 29 April 2009

Real estate prices and rentals out of sync


This simple graph from Nomura reveals how an index of rentals and sale prices for residential properties in the US moved completely out of sync during the first few years of this decade. The base for the index is Q1, 1991 and as can be seen the correction is clearly under way.

Although there is no compelling reason why the two indices would have to move back into sync with each other, the chart does demonstrate that to restore the previously consistent alignment between the two variables, home prices would need to retreat by another 20%.

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