SterlingResidential.com | Buying & Selling Residential Properties in Texas | Houses for Rent Houston Area | Humble Atascocita Kingwood & Spring Texas Realtors | Sterling Residential®, Realtors® | Real Estate Broker: What do local rental rates say about Houston’s housing prices?

During the last 3 years, Houston’s housing market broke all previous sales records, yet Houston remains among the most affordable big cities with a median price fluctuating between $140,000 and $160,000. Houston’s modest price appreciation didn’t attract many speculators, keeping local prices at sustainable and affordable levels. During that same 3 year period, annual rents have been relatively flat.

Examining the relationship between local house prices and annual rents provides additional evidence that the Houston housing market is not overvalued when compared to other markets — that’s not to say that certain economic events wouldn’t cause a drop in prices, but it does provide another measure to compare local conditions to the national housing market.

A recent Wall Street Journal article cites a study examining the relationship between house prices and rental rates. Used as a measure to gauge home values, the study indicates that current home prices are overvalued in relation to annual rents and prices would have to drop considerably over the next few years to restore home prices to sustainable levels.

Limiting our examination to Houston single family housing, the attached chart illustrates the relationship between price and rents — during the last 3 years of peak sales volumes, the rent-to-price ratio fluctuated around 9% or 10%. Two things are notable: (1) Houston’s rent-to-price ratio is above the national average indicating that local properties provide a greater return on investment and (2) despite record sales during the last three years, Houston’s single family median price was in line with annual rents and are not overvalued.

Read this month’s housing market conditions report