Inflated rents portend inflated house prices. If rents are at unsustainably high valuations, then so are house prices.
Historically, rent and income were bound in a tight relationship because renters generally pay the bills out of current income rather than savings. If income rises, renters use a portion of this increase to rent a nicer place, or due to the collective activity driving up rents, sometimes renters must pay more just to stay where they are. In the depths of the Great Recession, personal incomes dropped because many people lost their jobs and many others barely hung on. Ordinarily, such circumstances would cause rents to weaken as fewer workers with less money bid on the available rental housing stock, forcing landlords to compete with each other for tenants. Unfortunately, that isn’t what happened. When the housing bust began, lenders foreclosed on the subprime[READ MORE]