This is exactly how the economics are working. The FB were paying $2500 a month on the mortgage so they are not paying anymore. The new buyers are paying about $1500 for PITI for a median house so it makes sense to them to buy v.s. rent.
People will then ask, what if the rent also drops? Yes, it will and it has. But I have always argued that there is a floor to the rents. Historically, people in US pays an average of 25% of their income (of gross family income) in rents. In California, it was 28%. (http://www.census.gov/prod/2003pubs/c2kbr-21.pdf) Now, let’s just say the recession knock the CA ratio to 22.4% as layoff impacts ratio is 80%.
For a town like Temecula, US Census Bureau estimates that median household income is $75,335 and median family income is $80836:
And you will get $1400-$1500 in monthly rent payment estimate. That is exactly the range that the rent-occupied units (apartments) charge for family shelter needs (3B apartment). I always argue and still believe that this is the floor for the house rental price. Because, when the price drops to that range, we will drive the apartment owners out of business in their 3B units first since a house (including townhouse) is generally bigger and better, who wouldn’t want to spend the same money on a better shelter (again that’s how economics work)?
So why “the idiots” are buying? Because they believe the recessions will end one day or another, and if in a rent-depressed recession period, they pay the same for a much bigger house comparing to the rents. Imagine what will happen when the economy comes out of the recession while the lender is not going to raise your shelter costs as you have 30-year fixed payments.
(Note I ignored in my calculation on DP and tax benefit for buying, for simplicity reason, I consider them a wash in my calculation)
