[quote=SD Realtor]As we have all discussed, monthly payment is a much stronger measure of affordability then sales price.[/quote]
Sorry, and not to pick on you, but this popular but essentially meaningless statement is right out of the Realtor(tm) playbook.
Among other things, a higher sales price means higher property taxes in perpetuity, a higher down payment, higher insurance (possibly), higher sales transaction costs[1], etc.–and if you contend that higher sales prices can be made more “affordable” with lower interest rates, then you’d better account for the fact that the tax benefit as a portion of your mortgage payment is correspondingly lower. You’d better also factor in the time value of money for all the higher up front costs just mentioned.
Furthermore, a higher purchase price makes it less likely that you’ll get your money back out if you sell. For a lot of people a house purchase is a leveraged bet on rising home prices, and their bet is their down payment. Leverage works both ways, right? While not falling under the head of month-to-month “affordability”, this is an important consideration that folks in the RE industry–not necessarily you, so calm down–don’t like the sheeple to think about.
No, the best broad measure of “affordability” is sales price. Everything else is risky financial engineering at best and greedy boosterism at worst.
Besides, didn’t our esteemed host already make a strong case that interest rates have little correlation with selling price? This would tend to knock a huge hole in theories that make monthly payments the centerpiece of “affordability” calculations.
[1] These are paid by the buyer, period. OK?
[quote]I thing those that made the purchases will for the most part be fine regardless of market conditions as long as they have an income stream to continue paying the mortgages. For the most part they will also enjoy a quality of life that FOR THEM is superior to those who rent.[/quote]
Yes, and the intangibles count for a lot. It pays to be hard nosed about such things, however.
In my own case, I couldn’t afford to rent the joint I bought at the “bottom” in June 2009. I reckon the return on my down payment is well in excess of 10%/year net just figuring the difference between my all-in costs (ignoring tax benefits, etc.) and what rent would be. If worse comes to worst, my family will move into our motor home and we’ll rent the place out for enough of a profit to keep food on the table.
I wouldn’t have bought under any other terms: either the place is a no-brainer as a rental property or it’s dumb to buy (or you have money to speculate/gamble with, which I don’t). Why tie up so much money in a depreciating “asset” otherwise?
But other folks have other ideas. As long as “owning” your subdivided little slice of Southern California heaven doesn’t keep you awake at night, I suppose it’s a good buy. 🙂
