Rents vs Home Prices Correlation?

[John M.]

Hi BP'ers! I think in general the school of thought is that rents tend to go up along with home price appreciation because it is all based on the demand for housing in a particular area. However, this isn't always the case - for example in the housing crash rents in some markets barely budged due to the sudden demand for rentals by foreclosed homeowners. Freddie Mac also had a very low number of foreclosed multi units vs SFR in the Fannie Mae world during that period. I also know during the boom right before that rents didn't go up much in Phoenix where I was buying/renting at the time, even though home prices had almost doubled in just about 5 years. So rents and home prices movements can diverge, and rather dramatically.

In the current real estate market it seems that in most major markets across the US there's a pretty tight correlation between rising rents and rising home prices, some markets even in percentage terms (which I find somewhat remarkable).  For example where I live in Northern California rents in some areas have gone up 50-60% since about 2012-2013, almost the same % as price appreciation. 

So here's my question:  Do rents tend to act more "rationally" (for lack of a better word) than home price appreciation and therefore rental markets are in general more stable and predictable?   And if that is true, in markets where rents and home price appreciation has diverged significantly (i.e. flat to down rents with rapidly rising home prices, or vice versa), can any conclusions be drawn about those markets that might help guide decisions to invest (or not) in those markets?