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Price Rent Ratio |
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WIKI ANALYSIS| This article is part of WikiProject Definitions. Consider editing to improve it. View articles referencing this definition. |
Price Rent Ratio equals average home ownership price divided by average annual rent
The Price-Rent Ratio (alternately Price to Rent Ratio, or P/R) is a measure comparing average home prices to average annual rent. It is calculated by dividing average home prices by average annual rent. More specifically:
P/R = Home Ownership Price/(Average monthly rent x 12)
On average, in most major American cities, the P/R ratio fluctuates between 15 and 25. P/R ratios significantly above average are often indicative of a housing bubble.[1]
In this way, P/R is often used as the real estate equivalent of P/E.
Though less common, some real estate investors will use the inverse of the price rent raio, called the "rent to own" ratio or the "rent to ownership price" ratio.
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