The Price to Rent Ratio: A Handy Indicator for a Bubble

The price to rent ratio is a handy indicator for a bubble because it builds in both of those components, the rent being the intrinsic value and the price being the market value. The common sort of man on the street definition for a bubble is when the market price comes sufficiently unstuck from the intrinsic value. And you see them coming off the 20x price to Rent ratio from about 1998 to crashing crashing back down beginning in 2006.