We actually had a decent-sized thread about this a few months back. I forgot what the general consensus was, but my argument, in summary, was that a rational person should be willing to pay at least a 20% premium to comparable rents in the form of monthly ownership costs (mortgage interest + HOA + taxes + insurance, etc.). The logic is that there is some benefit to the interest deduction (although often less than people think) and, more importantly, over the long term you don’t have to worry about paying a higher rent each year, which is the norm, particularly in California. This really adds up from a present value standpoint. Once you factor both of these issues into the equation you come up with a decent-sized premium. Then many people would add in a “peace of mind/settled” intangible premium to the dollars and cents premium – this will vary from person to person. I think sdrealtor thought a 50%+ (total) premium was in order (which for some people might, in fact, be the case) while I was more in the 20%-30% range. The bottom line is that the average, rational person (absent special circumstances) should be willing to pay some premium over the comparable rent in order to own. The issue is what the premium should be and it will vary from person to person. For the most part, in my opinion – and most here obviously agree – that the “ownership premium,” as it were, is waaaaay too high.
