The question facing my wife and me was whether we were entering the market before the correction had gone far enough. I really didn’t know what the answer would be. So as we looked at houses, I started calculating rent ratios.
In the neighborhoods where we were looking, two-bedroom condominiums were selling for $400,000 and being rented for about $2,100 a month, which makes for a rent ratio of 16. Four-bedroom houses were selling for $700,000 and being rented for almost $4,000, which makes for a rent ratio of 15. No matter the price range, pretty much every apples-to-apples comparison produced a similar ratio.
Historically, this is still a bit high. But it’s very different from where the market was just a couple of years ago. With house prices having fallen over the last two years and rents continuing to rise, the decision became a much closer call. We would now have to spend only a little more each month for the privilege of owning.
This month, we found a house that we really liked, and we made an offer. It was accepted.
I’m still not sure how good our timing was. Based on the backlog of houses on the market, I fully expect that our new house will be worth less in six months than it is today. I’m also not sure that we would have been willing to buy in Boston, New York or much of California, where the rent ratios remain above 20, according to data from Moody’s Economy.com.
In fact, if you’re now renting — almost anywhere — and do not need to move, I’d probably recommend that you wait to buy. The market is still coming your way.
But it’s O.K. with me if our timing wasn’t perfect. After several years of reporting on the housing market, I’m convinced that the most common real estate mistake is viewing a house first as a financial investment and only second as a home. That’s one big reason we ended up in this bubble-induced mess.
Makes more sense to talk of rental yield: ie the reverse of what the author uses. So 16 is 6.3%. Then it can be compared with other income generating assets (after deductions etc of course)
Makes more sense to talk of rental yield: ie the reverse of what the author uses. So 16 is 6.3%. Then it can be compared with other income generating assets (after deductions etc of course)
Makes more sense to talk of rental yield: ie the reverse of what the author uses. So 16 is 6.3%. Then it can be compared with other income generating assets (after deductions etc of course)
Makes more sense to talk of rental yield: ie the reverse of what the author uses. So 16 is 6.3%. Then it can be compared with other income generating assets (after deductions etc of course)
Makes more sense to talk of rental yield: ie the reverse of what the author uses. So 16 is 6.3%. Then it can be compared with other income generating assets (after deductions etc of course)
.
