capeman, I hope you’re right, but I doubt things will get that bad. Here’s the problem. It’s extremely difficult to find a 2bed/2bath, 1000 sqft. downtown renting for less than $2,000/month, and most of them are in the $2,200 – $2,500 range. Yeah, you MIGHT be able to find the occasional desperate owner with a crappy unit willing to rent it out for $1,800. (While rents might go down in the coming recession, they probably aren’t going to go down by more than 3%-5% if the 90s are any guide.) So, assuming a price of $250/sqft. you get a price of $250K for a 1000 sqft. unit. Using traditional financing (20% down, 7% 30 yr fixed) you’ll get a total monthly payment (excluding principal) of about $1,800/month including taxes, HOAs, etc. In other words, at $250K most of these units will actually cash flow pretty well. While always possible (isn’t anything?), that’s a highly unlikely scenario. As was discussed in a previous thread a few months back, it’s completely logical for a would-be homeowner to pay a premium to what they would otherwise pay to rent the same unit, although debatable as to what that premium should be (I argued 20%-40% – others argued higher). My point is that if you’re waiting for $250/sqft. downtown, you’ll probably never buy downtown. $300/sqft. is possible, but also fairly unlikely. Nevertheless, I support you in your pessimism.
