Honors Theses
Date of Award
Spring 5-7-2026
Document Type
Undergraduate Thesis
Department
Business Administration
First Advisor
Bonnie Van Ness
Second Advisor
Chuck Hilterbrand
Third Advisor
Danielle Ammeter
Relational Format
Dissertation/Thesis
Abstract
This thesis investigates the usefulness of the price-to-rent ratio as a primary indicator of housing market valuation within fifteen Metropolitan Statistical Areas that have universities (MSAs). While traditional economic theory suggests that housing prices and rents maintain a stable long-run relationship, recent market volatility has challenged the reliability of this metric. This study utilizes a localized, trend-based analysis to determine the extent to which deviations in the price-to-rent ratio signal genuine market overvaluation or undervaluation.
The empirical results demonstrate a high degree of correlation between ratio deviations and home value trajectories. During the 2021–2022 period, all 15 analyzed cities experienced a simultaneous increase in both home values and price-to-rent ratio ratios. However, the effectiveness of the ratio as a valuation method was most evident in 13 of the 15 cases, where both metrics consistently shifted from below-trend to above-trend levels during the same time frame. In these markets, the synchronized movement suggests that price-to-rent ratio expansions serve as a reliable indicator of prices detaching from fundamental economic anchors.
The findings highlight that while the price-to-rent ratio is a good tool for identifying overvaluation in most university-anchored markets, it can be complicated by unique localized factors. Two outliers in the sample diverged from the broader trend, suggesting that institutional forces such as extreme shifts in rental prices or housing supply can occasionally separate the ratio from traditional valuation paths. Ultimately, this research concludes that the price-to-rent ratio is a highly effective, though not universal, measurement for identifying periods when housing prices have become disconnected from underlying fundamentals.
Recommended Citation
Mahaffey, Timothy C., "The Price to Rent Ratio as an Indicator for Valuation in the U.S. Real Estate Market" (2026). Honors Theses. 3513.
https://egrove.olemiss.edu/hon_thesis/3513
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