temeculaguy – remember that interest rates may go up as we move further into this real estate correction
you are saying that an El Cajon 1/1 condo won’t go below $150K because of the rent-to-own ratio
your analysis is correct (with exception of temporary overshoot below trend) BUT you aren’t considering how higher interest rates could change the scenario
here are monthly payments on a $150K, 30 yr fixed mortgage at different interest rates:
7% $998
12% $1543
15% $1897
18% $2260
at current interest rates and rents, a floor value of $150K makes sense
if mortgage interest rates rise to just 12%, we have to lower the condo value to $100K to make the rent vs own numbers work ($100K mortgage at 12% gives $1028/mo payment)
at 18% interest rates, which were reached in the late 1970’s – early 1980’s, the condo is worth $70K ($1055/mo payment)
