Rent/Ownership Ratio

CNN's Shawn Tully says that a good measure of housing derives from the ratio between what people pay in rent and what owners spend on the same property. Historically, people do not spend too much more to own a property over paying in rent. During a housing boom, renting becomes cheaper. The Deutsche Bank REIT research team first came up with a "normal" ratio of rents to ownership costs, or ATMP, after-tax mortgage payment for 53 US cities. In 1999, renters paid about 87% the cost of ownership on properties, indicating a small premium for ownership. Mid-2006 brought sub-60% levels.

In Las Vegas, Phoenix and Miami, homeowners were paying twice as much as renters, and in San Francisco and Orange Country, owners' monthly payments were triple those of their neighbors with leases instead of mortgages.

Overall, CNN predicts a 5% decline in housing prices nationwide. The drop could come in steeper if rents continue to decline.

In another 14 cities, a list encompassing Boston, San Jose, and Chicago, the cost of owning exceeds that of renting by 6% or less. In the remaining 24 markets, housing is still moderately to extremely overpriced. The biggest problem areas are Baltimore, Long Island, and Seattle, where the ratio is still between 24% and 32% above the 1999 benchmark.