Why you Care about the House Price to Rent Ratio

I recently heard of a blog called Calculated Risk. They had a very interesting post about the House Price to rent Ratio. Wait! This is a trade financing blog. Why am I talking about a real estate measure? Simply, because many of our purchase order financing clients sell their goods to big box retailers - who then sell it to consumers. And, consumers care about the Price to Rent ratio, even if they don't know about it.

According to Wikipedia, the ratio basically "how much the buyer is paying for each dollar of received rent income". I interpret the data as meaning that renting is cheaper than buying. So, many homeowners are paying more in living costs than they should (if the economy where "efficient"). Sure, it's a simplistic interpretation but I also think it happens to be reasonably accurate. If you don't believe me, check out the Miami real estate market.

More money spent on housing means LESS money spent buying other things - especially luxuries. And here is where some in the factoring and purchase order financing industry will get hit.


p.s. - Why this pircture? "Se Renta" means "For Rent" in Spanish :-)

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