FormerSanDiegan, I think the rent ratio in your Clairmont scenario dosesn’t find support in the 400’s. I am not saying that the bottom won’t be the 400’s, just that those numbers don’t make the masses jump. I have almost the exact mathematical scenario but in a different neighborhood and I’ve run the numbers but they aren’t within a few hundred bucks (you can’t use downpayment as part of your calculations, you should have one but it isn’t part of the comparison). Lat year the price of the houses I was looking at was about 500k and they rented for about 2k. Now I can get the same house for 400k and the rent is still 2k but they aren’t selling because P&I is $2600. At 300k it is $1900 for P&I, tax, ins and maint is cancelled out by income tax savings so just look at the straight P&I on a 30 fixed. Somewhere between 300 and 400 will be the tipping point, market psych, interest rates, etc. will cause it to fluctuate a little either way. In past cycles there were examples of it going below effective rent because the rental market shifted a little downward and vacancies were high but I think that the masses and investors jump back in when it makes too much sense to buy even if appeciation isn’t a possibility in the near term.
All areas are different but math is a universal language. I watched my area drop almost 20% across the board in the last 12 months and sales are slower than ever. I am watching the next 20% decline very closely because the mathematical equilibrium will be somewhere in that 20%, not just for me but for the rest of the people and the rest of the people is who sets the price.
