Tuesday, March 16, 2021

Which cities have the cheapest house prices?

From chapter 9, we know that in the long run a mobile asset has to be indifferent to where it is used, otherwise it will move.  This long-run indifference principle means that in the long run, you should be indifferent about where to live and whether to own or rent.  In particular, the price-to-rent ratios should reflect this "indifference," and be  similar across cities.  However, this is is certainly not the case.  Here are the most expensive cities:

CityPrice-to-Rent
Ratio
Home Price
(for a $1,000 Rental)
San Francisco, California50.11$601,362
Oakland, California41.05$492,611
Honolulu, Hawaii39.50$474,014
Los Angeles, California38.59$463,135
New York, New York36.83$441,987
Long Beach, California36.37$436,385
Seattle, Washington36.07$432,862
San Jose, California33.77$405,263
Washington, D.C.33.76$405,070

and the cheapest ones:

Indianapolis, Indiana13.18$158,161
El Paso, Texas12.79$153,486
Lubbock, Texas12.78$153,333
Baltimore, Maryland12.43$149,179
Milwaukee, Wisconsin12.43$149,146
Corpus Christi, Texas12.14$145,670
Pittsburgh, Pennsylvania11.14$133,622
Buffalo, New York10.66$127,862
Toledo, Ohio9.68$116,148
Memphis, Tennessee9.53$114,368
Cleveland, Ohio8.31$99,716
Detroit, Michigan5.35$64,194


NOTE:  this is not the "owner equivalent rent" which includes the opportunity cost of owning, it is a much simpler calculation than that,

median home value ÷ median annual rent = price-to-rent ratio

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