This is not always in the case in all areas of San Diego, much less, California. If 10-14 is historic norm, area like Mira Mesa already have rent multiple as low as 13-14.
AN – When we bought in Clairemont in 2006 (within months of the last bottom) the rent ratio was about 12. House was 160K, rents were about 1100 per month for equivalent house.
That was in an interest rate environment where 30-year fixed rates were about 8%. The inverse of rent ratio (or gross yield if you will) was about 8%.
When these numbers equate, the rent vs buy monthly outlay becomes very close (when accounting for tax benefits).
Currently, in places like Clairemont and Mira Mesa the rent ratio ranges from 13-16. This corresponds to a gross rate of as low as 6.25%. There are some examples in these areas where the rent vs buy is getting pretty close to favoring a buy. Looking forward, I would assume that rates move up to upper 7% range or higher, so I expect another 10-15% downside in these areas as monthly carrying costs approach monthly rent costs.
As far as a bottom, there are many factors and it will only be known in retrospect. But in terms of buying, I consider the comparison of monthly rent to monthly carrying costs in bread-and-butter areas like Clairemont as my best metric.
Of course I am looking at other signs/metrics. I currently have my eye out for the next Money magazine article or Business section piece that clearly shows that it does not make sense ever to own in Southern California and that renting is always favorable from a strictly financial perspective. That will be our cue.
