Why rent matters

[ckramer]

If home prices in your area are riding high and you're wondering whether it's because of dangerous speculation or a reasonable increase in demand, turn to the rental market.

In most markets, rentals prices have not risen anywhere near as fast as home prices, and in many, markets rents have fallen or remained flat.

Nationally, owning costs 7 percent more each month than renting, according to Torto Wheaton Research. The gap isn't huge but it is the widest it's been in more than a decade.

In a balanced market, say economists, the cost of renting should closely track the cost of owning. When the cost of owning is dramatically higher than the cost of renting similar property, you can guess that buyers are speculating on higher home prices.

link

[AWorkerBee]

1. think it has anything to do with rent control?

Maybe it's a good time to sell....

[politicat]

5. What's rent control??

No such thing, here. Hell, it's hard to get a landlord to fix what must be fixed, and one can expect to have to pay first, last and a deposit equal to a month's rent to move in.

Rent control is one of those liberal programs that red states abhor. :eyes:

[CAcyclist]

10. Even in the SF Bay area, only SF has rent-controlled apts

and Marin and San Mateo, almost no rent control.

[natrat]

16. friend in marin w/ 2 other housemates decide to move out

no rent control arbitration board etc.....landlord keeps entire $4,600.00 deposit because of bathroom wall delaminating....nothing they could do

[LeftyMom]

20. How long ago was this

I might be able to help (I know CA rental laws.)

[natrat]

26. thanks-its past history-a cautionary tale

[Ruby Romaine]

15. rent control is very rare except in the imagination of Rightwingers

been reading rw propaganda?

[AWorkerBee]

19. nah

just been quite a few years since I rented.

I do have a friend with a nice apartment in the Richmond District of San Francisco.

I think he pays about 700 for a 1 bedroom. His landlord hates him, he's been there 20 years

[salin]

23. I lived in a rent controlled apt in the bay area in the mid nineties

I lived in a pocket of poverty (and thus affordable rents, if you could stand the sound of gunfire) in a very wealthy area. Rent conttrol kept the rent rising marginally - while rents in the region (and even housing in the pocket of poverty community) were skyrocketing. Rent in a better but not great neighborhood in 1996 was about 800 for a two bedroom (and that was cheap); and by 1998 that same rent was going to 1200. My large one bedroom started at just under 600 in 1994, and rose to, if I recall, 650 or 690 by 1999.

Rent control was ending just as I moved. Don't know what happened later. However the housing market in neighboring communities with no rent control was skyrocketing at a much higher pace than in ours during the same period - even as properties were being bought up and "gentrified" (that is - converted to higher end properties.) The idea that rent control makes housing costs higher, as some rwgers contend, is absurd. At the same time, properties still increased in value in the rent control area - so the idea that somehow rent control prevented owners from realizing any investment value from properties was also not true - it just slowed the rate (and thus also reduced the risk in times of bust) of the increase.

[solinvictus]

2. Atlanta's rent vs. ownership seems to be deceptive..

not intentionally so, but most of Atlanta's boom housing market is outside the city limits.

[Megahurtz]

3. I rent, but

it seems like most people don't want to give up the comforts of the home that they presently own.

[SoCalDem]

6. Renting can be a pain if you have kids & pets..or smoke.

If you "rent from the mortgage company", at least you can do what you like without getting "permission" from a landlord:)

But buying has its own drawbacks..We are facing :
new roof
new A/C system
extensive yard construction
painting inside and out
yuk yuk yuk yuk

[northzax]

12. exactly, as a renter

my washer-drier broke the other day. So I called my landlord, and they send someone by to fix it. cost to me: nothing.

Watch the pretty bubble, last one out of the market gets to file chapter 11...

[natrat]

17. uh ....chapter 11? nope

[northzax]

25. fine, 7 or 13, whatever.

[natrat]

29. no i mean the new bankruptcy law makes bankruptcy impossible

right?

[northzax]

31. nope, you can still declare bankruptcy

you just can't shield as many assets or write off as many debts as before. But there are still homestead states where they can't take your primary residence away.

[demnan]

4. That's very interesting

I bought a condo last year - I struggled to do it because prices were going up so fast in the D.C. area that I figured if I didn't do it last year it would pay to wait. Now my condo has appreciated $30,000 since less than a year ago - and that's just insane.

[pokercat999]

22. I'm a new Realtor in the "metro DC area" actually

just on the edge in Fredericksburg, VA. Our single family homes increased 30% in value from 2-2004 to 2-2005. A house in this area valued at $300,000 is increasing in value about $7980.00 PER MONTH!
Young people cannot find homes that they can afford. I just took a listing on a 15 year old colonial, a nice but very basic home, no garage, older neighborhood, 3 bedrooms with 1 full and 2 half baths about 1350 Sq Ft....price $284,900.00 and we'll sell it as soon as it's ready to show in about 1 week! Most experienced Realtors I know believe this market is nowhere near the top!

One big thing renters lose out on is the tax breaks home ownership provides. $250K for singles and $500K for married couples filing jointly profit on the sale of a home that has been your primary residence for at least two of the last five years is exempt. Plus the regular deduction for interest on your mortgage.

[northzax]

32. 'young people cannot find homes they can afford'

that's the first sign. Second sign, how many properties are being bought as investments, not primary residences? I hear in Fairfax County and the District it's as high as 1 in 3. Every time the Fed meets and raises the interest rates, all those higher risk, adjustable rate mortgages you are peddling go up as well. Do you know what the difference between 6 and 7 percent, on a 360 month, %250,000 mortgage is? $175/month. Every percentage point on a 30 year, $250,000 mortgage is good for $175/month.


how will the people buying your little house do next year when their mortgage payments go up 350 bucks/month? (as every economist who doesn't work for the Administration thinks they will) and their taxes go up another 1,000 bucks? Are you building, in essence, $500/month of leeway into their budgets over the next three-four years? If not, you'll be selling the house again soon.

[LostinVA]

7. Not in my area

I just bought a house, and my house (not mortgage) payment will be $25 LESS than my rent, and the house has a decent yard, great neighborhood, and is 500 square feet bigger than my apartment. Plus, it's a HOUSE. I've been renting since 1987,a nd I''ll finally be paying into my own equity, instead of someone else's.

[Book Lover]

9. And yet in my area

I'd be a fool to buy instead of rent. This subject is *so* driven by location, it's impossible to compare nationally. Congratulations on your new home, by the way :-)

[LostinVA]

14. Thank you, Booklover!

I am also a booklover, btw. I'm 40, and never thought I'd own a home, even a little one, so I'm really psyched.

[theboss]

28. I bought in Northern VA last year

I figure in five years, I can sell, take the profit and buy a great house someone in West Virginia practically for cash.

[Warpy]

8. In an inflationary market, owning always makes more sense

than renting, simply because rental prices will continue to inflate, but that fixed mortgage will not fluctuate at all, although your real estate taxes will go up.

I bought my shabby little fixer upper about 8 years ago. Since then, rents in this area have doubled, making my monthly pound of flesh to the bank much smaller than the equivalent to a landlord would be.

Of course, the only person I can call when a pipe breaks (been there), the roof leaks (been there) or the cooler conks out (been there) is the appropriate repair company, not a landlord, and it costs. However, all these costs are far less when added up than rent would have been over the same period.

Plus, I get a big deduction on my taxes.

However, I think we're at the end of the inflation in housing. Around here, the tickytacky suburbs being slapped up on the edge of town are reporting that 1/3 of their home sales are to "investors." That smells like the market is slowly drying up and that nervous people are investing in real estate instead of a stagnant stock market. When housing prices stagnate or start to fall, those people will try to dump their holdings fast, and that's what will cause any housing bubble to burst. I have a sneaking suspicion it's going on everywhere, so I'm not so sure this is the time to take on a mortgage.

Then again, I could be wrong and the housing bubble will continue to grow for years.

[CAcyclist]

11. I think the bubble is going to burst soon.

I got cold-called by a realtor I met last year. I am definitely not in the market for a house. I think the realtors are getting desperate.

[Love Bug]

18. Could be. Could also be because

most people who were able to buy houses when the mortgage rates were still 4-5% have done so. Now that mortgage rates are rising, the pool of potential home buyers has shrunk a bit.

[ckramer]

21. Actually it's funny that

the current low interest rate has unfavorably compensated by the high house price, so today's buyers end up paying more. The catch is, comparing to the buyers 5 or 10 years ago, that the interest rate has been bottomed, and the house price has potentially been capped.

That's the risk for today's home buyers.

[Kansas Wyatt]

24. CBS reported this evening that mortgage rates fell sharply last month.

Then again, maybe somebody is cooking some numbers before the loud POP.

[Ruby Romaine]

13. it's still cheaper to buy than rent here- at least for a small house

wasn't Bush talking about "reforming" the tax break we get for owning a home?
the tax break is what makes it cheaper to own-
does this chart take that into account?

[theboss]

27. I finally bought last year

I pay $100 more a month for a two bedroom condo in a good neighborhood than I did renting a one bedroom apartment in a crap neighborhood. Plus, I could sell my unit at a $40K profit tomorrow.

I don't think the DC bubble is going to break for years. After 9/11, it got hotter. After AOL imploded, the market got hotter. Last year, was the hottest year of the boom. And prices have climbed all year.

[Lydia Leftcoast]

30. I did the math and came down on the side of renting

I don't want a yard or all the hassles, so I'd go condo, but mortgage payments plus association fees in a dreary suburb added up to more than I'm paying in rent for a spacious 2-BR in a pleasant urban village type neighborhood. (Well, there are cheaper condos, but I'm opposed to living in the exurbs on the edge of the cornfields on general principles, plus as a self-employed person, I need the "urban village" atmosphere.)

I already get a lot of tax deductions that most people don't get, since I'm self-employed, but the real tax consideration for me was that I'd be paying extra dollars that I couldn't really afford to buy a condo but getting back only 35 cents max on every dollar of mortgage interest that I paid. It just didn't work out.

I wouldn't buy unless I could afford to pay at least 50% of the purchase price as a downpayment.

[MrTriumph]

33. Faulty assumption- Prop. tax = 1.5% of home price. IT IS MUCH HIGHER IN TX

The table is very intersting and shows how prices have skyrocketed in some markets.

(As an aside, with the oil & gas boom, I wonder if Texas markets will follow. Note in the table how Dallas has lagged.)

ABOUT PROPERT TAX: In Texas, property tax is MUCH HIGHER than the assumption the makers of the table used. Ft. Worth has the highest of any major TX city- nearly 3 1/3 percent as opposed to the 1.5% used in the table. Dallas' are somewhat less

The Dallas numbers are probably more like:
cost to rent (1st column) $785 (no change)
cost to own (2nd column) $770+

It would be have been better had CNN/Money done their homework and come up with more accurate numbers although they might argue property tax offsets the lack of an income tax in Texas and that viewed as a burden to the homeowner, it distorts the comparison.