Monthly rental price of a comparable home and the pricing of a two-bedroom home

Abstract

Using single and multivariate OLS regressions, this study examines how the listing price of a two bedroom home is affected by the monthly rental price of a comparable home in the same city. We do this in order to provide some direction to young families looking to purchase their first home. Our data encompasses each state’s most populated city within the United States. This study reveals that as the monthly rental price of a comparable home (especially condos) increases, and/or as the price-to-rent ratio increases, so does the listing price of a two bedroom home. Therefore, a frugal home buyer should keep an eye on both comparable rental prices, and on the price-to-rent ratio within their city of interest. When rental prices drop, or when the price-to-rent ratio decreases, that is when a homebuyer should begin to consider the purchase of a two-bedroom home.