Noted: Economists Morris Davis, Andreas Lehnert, and Robert Martin calculated that the rent/price ratio averaged 5.29% from 1960 to 1995. But from 1995 to 2006 a home buying frenzy drove the ratio down to a historically low rate of 3.5%. Davis, an economist at the University of Wisconsin, Madison, says the ratio has climbed back to a recent peak of 5% in the first quarter of 2009, and in the fourth quarter of last year it was at 4.85%. Rents may trend lower, with a national rental vacancy rate of nearly 11%, close to a record high. Nevertheless, “the ratio is at its historic average,” says Davis. “Looking at that ratio, you would say that housing prices have stabilized.”
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