More Dangerous to Rent than to Buy

[Colin]

This is a quote from a professor of real estate at Columbia University, Chris Mayer.

If you want to argue, read his paper first: http://www2.gsb.columbia.edu/faculty/cmayer/Papers/superstar_cities_final.pdf

His position is that there are superstar cities in the US and more and more people can and will pay a premium to live in them. His data shows price appreciation in San Francisco consistently above the norm for 50 years; at the other end of the range, prices in Houston today are at the same level (in real terms) as 1975 (no zoning, plenty of land). He thinks commercial real estate is overpriced, and he thinks condos are in trouble.

[PerryChase]

I read the paper. Assuming that everything the professor said it right, it’s still better to rent than to buy. I don’t see how the paper supports you argument that it’s “more dangerous to rent than to buy.”

We could discuss the paper, but that’s a different topic.

[Bugs]

I do agree with the premise that people pay more to live in places like SD; the big question is, how much more?

Most market segments in San Diego County dropped at least 20% during the mid 1990s in response to the spike that preceded it. The current spike is 3 times larger than the 1990 spike. If our academics had projected the 1950-2000 trend of 2.6% average annual increases from 2000 to present, the 3bd/2ba house in Carlsbad that sold in 02/2000 for $375,000 would now be selling for $448,000 instead of $700,000+.

That’s one of Piggington’s primary points – that long term trend does hold up. In order for the $700,000 price to correct back down to the 1950-2000 trendline these academics are using, it has to decrease another 35% on top of the 10% that’s already occurred. That’s assuming it doesn’t overshoot, which is what’s happened every other time these markets have distorted like this.

Their own statistics don’t even uphold the premise that this time it’s different.

[Anonymous]

Wow,

I read the first 10 pages, skimmed the rest! Good info, but far too technical and hard to read for a guy like me.
A few things I noticed:

-Las Vegas gained poor and rich people, probably because of low wage tourism jobs, not because of this fancy theory.

-San Francisco gained rich, lost poor – but does his theory account for the simple fact that there is a different bar for being ‘rich’ there? Companies pay much higher wages there, thus there are more people who earn more, and less people who earn less. It wasn’t always that way there, so the numbers from 1950 would of course show more poor people.

-Does this study assume that rich people will migrate to these superstar cities, or that the growth of the rich in these cities will come from internal growth?

Interesting if applied locally over the long term. If we gain 300,000 more families here the next 20 years, and 10% are rich, that’s 30,000 more familes who will want to buy a high end home. Not to mention the 50-75,000 familes who will need mid level homes. Since we aren’t building single family homes here anymore, I would say that bodes well for long term appreciation for them. These buyers will not want an 1100 sqft. smart-growth condo/townhome with no yard and an alley driveway entrance.

Of course, if these folks are all illegal immigrants….

[mixxalot]

San Francisco and NYC jobs pay a lot more than here in San Diego.

To me, San Diego employers believe in the “cheap cheap cheap!” mantra in compensation of their employees for sun dollars.

[Author]

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