The chart below shows the relationship between home prices and rents. The relationship between home prices and rental rates is a great leading indicator of where the housing market is headed, especially in terms of home prices. As the chart shows, the rental rate trend remains very consistent over time in good times and bad. Home prices, on the other hand, fluctuate significantly and, when the home price trend falls too far below the rental rate trend, home prices are destined to increase at a greater rate in the near future. Conversely, when the home price trend exceeds the rental rate trend, the home price trend is due to head downward soon until home prices have adjusted accordingly.