Housing costs less than half compared to 2006

[ninaprincess]

This house, sold for $630,000 and now sold for $400,000.

The 30-yr morgate rate in 2006 was 6.5%, now it is 4.2%. Assumming that the buyer was/is borrowing 100%. The payment is $3,960 vs. $1,949. The new payment is about half and we are not even factoring the 10% to 15% inflation that has occured in five years. I believe it costs about $2,100-$2,300 to rent a house similar to this right now so it is cheaper to buy than to rent right now even for houses.

http://www.sdlookup.com/MLS-110050901-7407_Mason_Heights_Ln_San_Diego_CA_92126

[(former)FormerSanDiegan]

This is not an isolated incident, per Rich’s year-end 2010 plots (example and link below)… Note that monthly payment to rent ratio was less than 1 at the end of 2010. Rents have risen, prices are flat and interest rates jhave dropped, so this is still the case.

[img_assist|nid=15489|title=Rich Toscano plot|desc=|link=node|align=left|width=436|height=336]

Shambling Towards Affordability: Year-End 2010 Edition

Also, note that payment-to-income ratios are well below half what they were at the peak.

Buy houses now. They are underpriced !

[outtamojo]

[Shhhh, keep this quiet, I wanna get another rental some time next year]

[patientrenter]

[quote=ninaprincess]This house, sold for $630,000 and now sold for $400,000.[/quote]

Maybe I am not as good at math as I thought, but 400/630 is 63.5%. So the house is now 36.5% cheaper than before. If you can’t afford to buy the house, you can get financing, and the financing may have dropped in cost as well. However, the house price is down by 36.5%, not over 50%.

[sdrealtor]

Correct on price but part of the cost of buying a house is interest charges and including that its half.

[(former)FormerSanDiegan]

[quote=patientrenter][quote=ninaprincess]This house, sold for $630,000 and now sold for $400,000.[/quote]

Maybe I am not as good at math as I thought, but 400/630 is 63.5%. So the house is now 36.5% cheaper than before. If you can’t afford to buy the house, you can get financing, and the financing may have dropped in cost as well. However, the house price is down by 36.5%, not over 50%.[/quote]

Here is a clue:

1. Compute the total cost over 30 years for buying the 630K house in 2006. Call that A.

2. Compute the total cost over 30 years for buying that same house for 400K in 2011. Call that B.

3. Divide B by A, then multiply by 100.

[scaredyclassic]

Interesting. My place would cost about 38 percent of 06 payment. I was excited About thistried to tell my wife this but she said who cares?

[barnaby33]

So you are all comparing current pricing to peak insanity with loan products that aren’t available anymore and almost zero wage growth yet 15% cost of living inflation(using other posters number, not my own). Wow there is some VERY fuzzy math going on here. I’m lucky in that I’ve gotten a 3% raise each of the last two years. Most people who have a job, haven’t.

Anywho, congrats on finding that payment that is half what it was at peak! What was your name? I thought I heard Harry Howmuchamonth.

Josh

[scaredyclassic]

True. And yet, still interesting.

[an]

What’s wrong with comparing monthly payment? Unless you’re paying cash for your house, interest rate plays a big part. If you think money payment is FUZZY MATH, then compare total cost of buying that dwelling (P+I).

[sdrealtor]

[quote=barnaby33]So you are all comparing current pricing to peak insanity with loan products that aren’t available anymore and almost zero wage growth yet 15% cost of living inflation(using other posters number, not my own). Wow there is some VERY fuzzy math going on here. I’m lucky in that I’ve gotten a 3% raise each of the last two years. Most people who have a job, haven’t.

Anywho, congrats on finding that payment that is half what it was at peak! What was your name? I thought I heard Harry Howmuchamonth.

Josh[/quote]

Josh
What makes it all interesting and puts it into context are the graphs on Rich’s post from last February “shambling Toward Affordability” which weas written when both prices and rates were higher.

BTW got an amazing wine event in a few weeks if you want to drink amazing California cabs from early 90’s.

[(former)FormerSanDiegan]

[quote=barnaby33]So you are all comparing current pricing to peak insanity with loan products that aren’t available anymore and almost zero wage growth yet 15% cost of living inflation(using other posters number, not my own). Wow there is some VERY fuzzy math going on here. I’m lucky in that I’ve gotten a 3% raise each of the last two years. Most people who have a job, haven’t.

Anywho, congrats on finding that payment that is half what it was at peak! What was your name? I thought I heard Harry Howmuchamonth.

Josh[/quote]

Josh –

There is nothing fuzzy about this. Housing is the cheapest it has been on a relative basis by almost any fundamental metric (price to income, price to rent, payment to income and payment to rent ratios) since maybe the 1960s.

If you look at those fundamentals it reminds me of 2004, when clearly things had swung too far in terms of fundamentals. But, momentum was still up, psychology was still too positivs, and the economy was still creating jobs at a reasonable pace. So, we had to wait another year or two for some spark to set off the reversion to the mean.

Well, here we are in 2012 (almost) with price ratios that are well-below long-term averages, momentum is negative as is sentiment and the economy is not creating enough jobs. Very few can see a price ratio reversion to the long-term mean. There is no obvious mechanism to spark that reversion and the vast majority do not expect it.

This is the exact time when those that are contrarian should position or protect themselves against that reversion. It may not happen for another year or two, but it will happen.

[scaredyclassic]

That was a great comfort to me during escrow, normal people telling me I was doing something dumb.

[barnaby33]

FSD, I posted because I disagree. Housing is only cheap because of unrealistic financing. Housing will be fairly priced when we return to historic norms for ALL the important aspects of how housing is priced, including incomes AND interest rates. Its only cheap if you ignore risk. Risk is NOT intangible. Unemployment is high and probably going higher. Interest rates are driven to lows only because our govt is buying all the mortgages and subsidizing risk at a huge level. Costs for everything basic are surging MUCH faster than increases in income. Its nuts to say housing is affordable.

I’ve had this argument with Rich several times over dinner. I suppose the way I view it is that in order for housing to recover it has to be fairly priced. In order for fairly priced to occur, employment must be on the rebound or at least stable. Lenders must also be accurately compensated for the risk of lending money. One other often overlooked issue is rising taxation. Too many of the unspoken assumptions in this and many other threads are that none of the fundamentals have changed radically. If nothing else this period of instability should point out that many of those either no longer are true, or are due to be changed in the near future.

If you just look at the statistics of rent to own in aggregate I’d agree that things aren’t awful. Of course, again you are making assumptions that the rest of the “market” is functioning normally as well. One of those assumptions is that rent to own ratios encompass a very broad swath of society. In the US where unemployment hovers near 10% I don’t think that’s a valid claim. If unemployment were close to average sure. So now there are two problems I have with that metric. One it covers a much smaller group of people than it used to. Second there is no compensatory stat for those who aren’t covered and probably aren’t working. That’s just one of the traditional metrics that people use. There are of course others.

[jstoesz]

barn,

spot on.

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