Why is this happening? Like, why did prices rise 25-33% in Santa Clara county this year but rents didn't?
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The housing market always works in a boom/most cycle, with the price-to-rent ratio blowing up as the economic heats up and then shrinking as it busts
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Are they only using market rents in SF? Including rent controlled rents would make the ratio look bigger than it really is...
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At 1/45 ratio, thats a 2.22% cap rate, implying that Bay Area housing is a safer investment than a 10 year US Treasury Bond.
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Assuming no maintenance costs
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I just did the math on *condos* in SF and it worked out to just around 25x price-to-rent (counting rent for 5+ unit buildings). So the SF condo market seems a bit healthier than the single family home market, which is bananas.
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(Specifically: https://www.paragon-re.com/trend/charts-of-the-day … says median condo price of $1.24M / median rent for 5+ units of ~$3700 == 28x.)
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That ratio (a 4% overall return) incorporates current implicit market rent as current return + expected future price appreciation. As the ratio rises (e.g. valuations rise), it generally means expectations of even higher price appreciation. Which is how markets crash.
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As interests rates climb and the economic cycle runs its course (it has), there’s going to be a day of serious reckoning for a lot of folks that took on big mortgages, car payments and borrowed from time retirements. Bank on it.
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