The Housing Cycle: Rents Versus Prices in the US

Rents are proposed as a fundamental determinant of house prices, and deviations from a stable price-rent relationship are used as measures of housing bubbles. However, previous research demonstrates rents and prices are affected differently by fundamentals. We thus examine the cyclical behavior of rents and house prices across a dispersed set of cities. House price cycles are in most cases more volatile than those for rents. Moreover, rents across the different cities exhibit more cyclical co-movement than home prices. In addition, measures of house price and rent co-movement exhibit different dynamics, with peaks and troughs often occurring at different times.