7/26/2010 3:50:00 PM Portland rental market thriving as home prices continue to decline
By Erin Kelley Oregon Legal Journal Staff Writer
Given the current state of Portland's housing market, it may pay to rent over the next few years. Financial analysts recently completed calculations of the price ratios for renting versus buying in 54 of the country's metropolitan areas.
They found that in Portland, the market is ripe for renting.
This ratio is calculated by dividing the median home price within a region, by the average annual cost of renting a similar property in the area.
The equation is not applied towards specific homes, but rather is used as a broad index to help analysts decide whether buying or renting a home is a better choice within a given region.
If the price-to-rent ratio falls below 20 in a region, generally this is seen as an indication that buying a house is the better option, whereas, in a region where the ratio exceeds this margin, housing specialists recommend renting, at least temporarily.
Nationally, the average ratio for the first quarter of 2010 was 18.8, a number 26 percent higher than the historic average from 1989-2003.
Portland's price-to-rent ratio exceeded 25, which represents a major departure of 40 percent from the historic average in the city of roses.
But despite seemingly abnormal deviation from historic averages, economists argue that house values follow similar patterns and cycles to stock investments, and that the distorted ratio is a result of factors such as high rates of unemployment, excessive housing supply levels, and high foreclosure rates-all of which are currently impacting the Portland metro-area.
Many economists maintain, however, that the price-to-rent ratio will diminish as these issues subside.
For now, analysts say this disparity is indicative of trends to come in the Portland real estate market-the continued decline of home prices, and increased rental rates throughout the area.
