[quote=asianautica]$225k at 6% interest rate will cost ~$1350/month with 0% down. Those houses can easily rent for $1700-1900/month depending on condition. PITI – Tax deduction will bring you to about $1200/month. If you put down 20%, you’re looking @ PI of ~$1100/month and PITI – tax deduction of about $1000/month. That seems too good to be true for a 3bed/2bath house when 2 bed/2 bath apartment rents for around $1400-1500/month. If rates goes to 8-9%, then I can see that happening, but not at today’s rate.

At the bottom of last cycle, ~1996, a 2 bed/2 bath apartment goes for $900/month and a 3bed/2bath house were selling for around $150k. Interest rate I think were around 9% back then. PI should be around $1000/month and PITI – tax deduction was about $800/month.

My point is that at the bottom of the last cycle, buying a home with 20% down will cost you 10% above the rent of a 2bed/2bath apartment. @ 10% above today’s rent with today’s interest rate, you’re looking at price of around $325k.[/quote]

Great analysis!

I totally agree with your analysis except that I am in the camp to believe that rent will decrease in the near future. Rent is closely related to income. When people can’t afford the rent, they have to pick up and move. Once vacancy creep up, landlords have to lower rent.

For MM, what’s the typical or median household income? per this http://www.melissadata.com/lookups/TaxZip.asp?Zip=92126&Submit=Submit
the average income is a little less than $50K/year. The median usually is less than average. So the pre-tax take home pay is about $4000/month. It is extremely hard for them to afford a rent of $1,700/month because that’s over 40% of their income.