Friday, August 26, 2005

Peak home prices, or maybe not.

The New York Times reports "Rents are rising again across the country", and gives the curious interpretation that this is a sign of a weakening in home prices.
The turnaround appears to be another sign that the boom in house prices and sales is finally slowing, as homes have become so expensive in many metropolitan areas that some people have decided to rent instead.
But, of course, a rise in rents should support a rise in home prices, other things equal, since a home that generates more rental income is worth more, and if rents increase then persons in need of housing find buying a home less expensive relative to renting.

Moreover, those who argue that there is a home price bubble have regularly claimed that the failure of rents to rise with home prices is evidence of the fact. I've no doubt this has been stated in the Times itself, but not wanting to go back into the pay archives will settle for the likes of this, this and this.

Rents in about 85 percent of large metropolitan areas have climbed in the last year, according to Global Real Analytics, a research company in San Francisco. Late in 2003, rents were falling in 85 percent of markets.
Such a general rise in rents might be read as supporting the recent rise in home prices, giving impetus to a further rise, or mitigating a coming collapse. But to read it simply as evidence itself of weakening home prices seems rather like ... Times-o-nomics.