Buying cheaper than rent and interactive map

[temeculaguy]

Interesting article in the NC times today. It’s actually pretty balanced and much better than average for the local papers.

http://www.nctimes.com/blogsnew/business/realside/housing-this-is-crazy-home-ownership-cheaper-than-renting/article_51f6ebaa-fe2a-518c-a3a8-2ee33d711391.html

And an interactive map showing the ratio based on zip code

http://www.nctimes.com/map-where-mortgage-payments-are-lower-than-rent/html_7d8b5a5b-7998-5e49-89ed-f4070f28cc46.html

I’ve always seen rent to buy ratios as the end all, be all. For rentals and primary homes, it’ a simple formula and one that can predict the future better than anything else. We can talk doomsday all day long, but the masses tend to rent when it’s cheaper and they tend to buy when it’s within 10 or 15% of rent after tax deductions. Once it starts getting above that, renting becomes more attractive and more popular, hurting appreciation (but the last boom defied that theory, temporarily). Since the end of 2008 we entered something I’ve never seen, where renting costs more than owning, I’m surprised it’s lasted and I doubt it will continue. After looking at that map, it’s obvious that all areas are not experiencing the same percentages and I believe if we look back in 5 years, the greatest appreciation will be the areas with the best ratios right now. Many areas exceed 40% cheaper to buy than to rent, that will not last forever, mark my words.

[outtamojo]

[quote=temeculaguy]Interesting article in the NC times today. It’s actually pretty balanced and much better than average for the local papers.

http://www.nctimes.com/blogsnew/business/realside/housing-this-is-crazy-home-ownership-cheaper-than-renting/article_51f6ebaa-fe2a-518c-a3a8-2ee33d711391.html

And an interactive map showing the ratio based on zip code

http://www.nctimes.com/map-where-mortgage-payments-are-lower-than-rent/html_7d8b5a5b-7998-5e49-89ed-f4070f28cc46.html

I’ve always seen rent to buy ratios as the end all, be all. For rentals and primary homes, it’ a simple formula and one that can predict the future better than anything else. We can talk doomsday all day long, but the masses tend to rent when it’s cheaper and they tend to buy when it’s within 10 or 15% of rent after tax deductions. Once it starts getting above that, renting becomes more attractive and more popular, hurting appreciation (but the last boom defied that theory, temporarily). Since the end of 2008 we entered something I’ve never seen, where renting costs more than owning, I’m surprised it’s lasted and I doubt it will continue. After looking at that map, it’s obvious that all areas are not experiencing the same percentages and I believe if we look back in 5 years, the greatest appreciation will be the areas with the best ratios right now. Many areas exceed 40% cheaper to buy than to rent, that will not last forever, mark my words.[/quote]

I agree re rent vs buy ratios as a buy signal. No need for $600/plate macro presentations ala Bruce Norris. Only thing I would add is an adjustment for historical rent vs buy as places like La Jolla “proper” (not Santee!) never approach the rent vs buy ratios of say a San Marcos or Riverside
and such.

[Wah-Wah]

[quote]
Cardiff By the Sea
Zip code:
92007

Difference of monthly mortgage from monthly rent:
-30.4%
[/quote]

any comment???

[ocrenter]

[quote=Wah-Wah][quote]
Cardiff By the Sea
Zip code:
92007

Difference of monthly mortgage from monthly rent:
-30.4%
[/quote]

any comment???[/quote]

sample size error.

[The-Shoveler]

Hmmm TG well I will add interest rates may take a bite as well.

[temeculaguy]

The abnormally low interest rates are one of the primary factors for this phenomena, nobody is disputing that. While it’s been discussed and proven that rates don’t necessarily have a proportional cause and effect on prices that logic would suggest, it has everything to do with rent vs purchase ratios. The good news is they are backwards beneficial, meaning that people who purchased at higher rates can refi, people purchasing once the rates have risen cannot. Low rates benefit or save existing owners, but there’s no guarantee for the future owners to benefit.

For instance, my chosen zip code was a little ahead of the decline so more than three years ago the rent vs. buy threshold was crossed. Even though I jumped in when rates were about 6.5, I was able to refi to a lower rate, making the advantage even better. If you own, it’s better to guess the rates incorrectly than the prices. If they go down, chase them and get a fixed, if they go up, sit back and open some wine, it’s pretty simple stuff.

The article for me explained sheeple mentality and defines piggington beliefs. The masses rushed to buy when owning cost twice what renting did because it was the cool thing to do, piggs didn’t. Now that buying is on par or cheaper than renting in many areas, piggs are buying in droves and the masses are afraid of real estate because it’s not cool. The masses have the fresh memory of how people got burned in R/E, but we know why they got burned, unfortunately they probably will never figure it out. It’s math homework for grown ups and it gives people a headache, they’d rather listen to co-workers and relatives than do the homework.

When you boil down the real reason for buying a primary residence, it’s not an investment, it’s an inflation hedge, a way to fix your rent. The way our economy works it’s rigged against any sustained deflation, inflation over time is the system. Find a 60 or 70 year old lifetime renter (not a strategic renter like most of us) and ask them if they can think of a time in their life in hindsight they wish they would have bought. 97% of them will cite at least one example and of course 3% of the population is crazy. I firmly believe that I will look back in 20 years and wish I had more access to capital right now and I had purchased more r/e, but then again maybe I’m in that 3% that’s crazy.

[scaredyclassic]

if my parents had bought one of the the brownstones in the crappy neighborhood in NYC I was born in, and they were really cheap, well, they’re pretty damned expensive now. I think people thought the cities would be consumed ina conflagration of urban rioting and vietnam war protests and that the end was relatively near for NYC. That vibe was erroneous.

[scaredyclassic]

it’s all very much like a game of chess.

That’s what i say about everything nowadays.

A relative is renting a kind of bad house for the same money I’m paying after tax for a nice house.

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