A simple way to determine if any given market's house prices are over/under inflated is to multiply the median monthly rent rate by 180 in order to determine what the median house price for that area should be. This is similar to what appraisers do when they use the gross rent multiplier to determine investment value potential, and what commercial agents use the cap rate for.
Example: $750 rent X 180 = $135,000.
If the median house price is higher than the median rent, it is a good indication that home prices in that market could still have room to decrease. Right now a lot of areas of the country appear to have stablized, while some are still decreasing. Rent rates are waivering depending upon what stage of the market crisis the particular area is in. In Utah, we generally lag the nationwide trend and the peaks and valleys of the median sales price
The Salt Lake County the median house price for 2010 was $208,000 according to the Salt Lake Board of Realtors. That said, median rent would be about $1155 monthly. I am still trying to find out from a reliable source what the actual median rent number is for the County, but that number seems pretty reasonable. If I were to guess, I would say $1100 is median rent on a single family home, maybe lower on a condo or townhouse. I will post if I find something. It is a tough number to find, because you get a much lower number when you include rents from apartments.
As an exercise, guess what you would think median rent would be for your market and then use this calculation to determine what the median sales price should be. It is not a crystal ball, but may give a good indication of if your market has stablized. Also, consider what factors about you market, good and bad, are causing your ratio to be off of the national norm. Any comments and insights are appreciated.
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