Two common measures of home prices are comparing the costs of renting vs. buying a home and the ratio of home prices to income. Both these measures suggest this is a good time to buy. The Rent-to-Buy ratio is below its average for the 1987-2012 period by a small amount, but is headed toward neutral as home prices advance. The comparison of home prices to income is low compared to the patterns seen since 1987 and is also moving up as home prices climb faster than income. The charts show both measures. Double click on the chart for a larger image.
Both charts use the S&P/Case-Shiller 10-City Composite Index because it has history back to 1987; the 20-City begins in 2000. The income measures is disposable personal income per capita. This is income after taxes and is divided by the population so the comparison is between the price of a home and an individual’s income. There is no impact from population increases since 1987. The rent-to-buy comparison uses the Consumer Price Index for the rent of a primary residence to measure the cost of renting. Both measures are scaled to average 100 over the time period.