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I think you raise a good point. Those with secure enough employment that pays enough to afford $3000-5000 a month for a single family rental are more likely to get over the fear of buying in a down market, than not.
They are also more likely to want to put down some roots in a solid community with good schools, install an invisible fence, let the dog run and get on with their lives.
Many of these wanna-be buyers are not renting right now. They are trying to sell their existing home for $500K , enough to make the leap into the $600-700K market. And so many of them can't pull it off and so, remain, where planted. They are dependent upon buyers trying to sell their $300K homes, who are dependent on buyers trying to sell their $179K homes and on and on.
I am also aware that this is not the typical profile in the U.S. Most people cannot afford $3000-5000 rent, let alone a house payment, deduction be dammed. Most people make compromises on neighborhoods and schools because they have to and at some point, good enough is good enough.
You are so right with one more piece I'd like to add- some who are planning to move up to a 6-700 thosand home will not be paying much more, if any more for that home than they were for the 500 one. They are putting more money down with low interest rates so their "monthly affordability" does not change by any significance. But you are correct, they can't do it, at least not for an indefinate amount to time, by not selling their existing homes, leaving them with 2 to pay for. In historical, traditional markets, it flowed fairly smoothly this way. In this market, it gets "stuck". This is another point I made several months back in my "personal stories" many on this forum find irrelevent. Oh well. Thanks for pointing out another Obvious" in the real estate market that no one hears about. Have a good day.
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It's all about the economy. Places that have highly educated/trained workforce will always lure businesses. I think there was an article in MSNBC yesterday under the real estate section about the top 5 cities to rebound with commercial real estate. The usual cities, NYC, SF, LA, Seattle, Wash DC.
These articles sorts of articles shouldn't be taken very seriously..... After all, if you look at what they were saying 3 years ago it mostly was wrong.
Although SF, NYC etc have an educated workforce they are also very expensive places to do business. Businesses have been fairly successful in luring people away from these areas by offering the same pay in areas with much lower costs of living. The cost of doing business in these cities is a double whammy. Both the cost of commercial real estate is high and the tax burden is high.
* You are forgetting the opportunity cost of how else you could be investing that 20% down payment.
* You are forgetting maintenance costs, this may be small for the 1st few years of a new house, but overall is fairly hefty. For a nice house, the roof alone can effectively add almost 1k a year.
* You are forgetting the standard deduction renters get in your tax math.
* You are forgetting the close to 10% cost of selling a house that you have to amortize over the number of years you own the house.
* You are forgetting the likely depreciation of your house as a cost. Japan has had 18 straight years of this.
Your also assuming folks will continue to be willing to pay that much in rent, that doesn't seem like a safe assumption now. I suspect supply of houses for rent will exceed renters that can that much in this economy.
The main reason I see people buying by a certainn age;is that they don't want the continuing cost of renting or leasing when they retire.The problem I see is that many that can afford a $350,000 home and buy a 700,000 home as values drop will not to be able to afford the maintenance cost in that same home which are only rising. They will end up with a property they can't afford still.That happened to alot of buyers in the boom as they moved up.
* You are forgetting the opportunity cost of how else you could be investing that 20% down payment.
* You are forgetting maintenance costs, this may be small for the 1st few years of a new house, but overall is fairly hefty. For a nice house, the roof alone can effectively add almost 1k a year.
* You are forgetting the standard deduction renters get in your tax math.
* You are forgetting the close to 10% cost of selling a house that you have to amortize over the number of years you own the house.
* You are forgetting the likely depreciation of your house as a cost. Japan has had 18 straight years of this.
Your also assuming folks will continue to be willing to pay that much in rent, that doesn't seem like a safe assumption now. I suspect supply of houses for rent will exceed renters that can that much in this economy.
All of those above statements that you have stated in your post are very valid and good.
I'm just trying to make a simplistic rationalization to the overall real estate conditions and eventually the market will stabilize.
But there are always risks involved. So supposed you invested that 20% downpayment into the stock market earlier this year instead of a downpayment. You could have invested in "value" stocks which traditionally were very safe. Fast forward 11 months and you most likely would have lost 30-45% of your investment.
The markets for "affordable" rents is getting tight in many of the larger urban cities. I realize cities such as Houston, Dallas, Miami, Orlando, mid and upper mid western cities etc have traditionally lower rent vs. larger cities such as Boston, NYC, Chicago, SF, LA. But as more people rent instead of buy, there will be less homes available in those cities so it's a supply and demand issue.
If you had a family of 5, how long do you want to rent? Do you want to keep living in a 2-3 bedroom apartment paying $1600-2000 rent? Try to find a single family house in a good neighborhood with good schools in higher cost living areas for less than $2000. You probably can't. Again, I'm not talking about rents in places such as Indiana, Kansas, Texas, FL. I'm talking about rents in Boston, LA, NYC, SF, DC.
Most people do not take the standard deduction in higher cost areas, especially those with high state income taxes. They itemized.
These articles sorts of articles shouldn't be taken very seriously..... After all, if you look at what they were saying 3 years ago it mostly was wrong.
Although SF, NYC etc have an educated workforce they are also very expensive places to do business. Businesses have been fairly successful in luring people away from these areas by offering the same pay in areas with much lower costs of living. The cost of doing business in these cities is a double whammy. Both the cost of commercial real estate is high and the tax burden is high.
I agree that companies are investing their money in places that they can better afford to do business in. If peole living there think its expensive it is over the top for most companies .They have no problem building in different areas that are newer and cost of living is cheaper for their employeees . Anyone doubting this needs to look at where the jobs are at and have been growing.
All of those above statements that you have stated in your post are very valid and good.
I'm just trying to make a simplistic rationalization to the overall real estate conditions and eventually the market will stabilize.
But there are always risks involved. So supposed you invested that 20% downpayment into the stock market earlier this year instead of a downpayment. You could have invested in "value" stocks which traditionally were very safe. Fast forward 11 months and you most likely would have lost 30-45% of your investment.
The markets for "affordable" rents is getting tight in many of the larger urban cities. I realize cities such as Houston, Dallas, Miami, Orlando, mid and upper mid western cities etc have traditionally lower rent vs. larger cities such as Boston, NYC, Chicago, SF, LA. But as more people rent instead of buy, there will be less homes available in those cities so it's a supply and demand issue.
If you had a family of 5, how long do you want to rent? Do you want to keep living in a 2-3 bedroom apartment paying $1600-2000 rent? Try to find a single family house in a good neighborhood with good schools in higher cost living areas for less than $2000. You probably can't. Again, I'm not talking about rents in places such as Indiana, Kansas, Texas, FL. I'm talking about rents in Boston, LA, NYC, SF, DC.
Most people do not take the standard deduction in higher cost areas, especially those with high state income taxes. They itemized.
Yep, I understand what you are trying to say. Let me make my point a different way. I'm one of those folks you are talking about. After just relocating, I'm renting a house in a nice neighborhood for $2500 for my family (including kids). I could easily afford to buy it. However, I've done the math from my perspective as the renter & when I do the math, we are a MILE away from me even thinking about buying again.... even without the economy tanking, which, sadly, it is.
I'm also one of those renters you're talking about... except in my area (yep, one of those high cost housing areas you referenced in your first post) while RE prices have dropped from the peak, they are still insanely high.
So while I can rent a very nice 2,500+ sq ft SFR w/pool, great school district, etc, etc and still keep my monthly housing costs at 25% of income; unlike the previous poster, there's no way I could afford to buy the house I'm renting and keep any kind of sane price to income ratio. In fact, in order to keep my P/I ratios in line, I'd probably be looking at a sub 2,000 sq ft condo if I wanted to buy right now.
Crazy stuff, eh?
Oh and rents are actually declining here. When we first pulled all the rentals that met our specs a year and a half ago, we had maybe 5 or 6 houses to choose from. But doing a search using the exact same parameters today, I got over a dozen listings. So while there may be more renters out there, it seems there are also more rentals to choose from. Of course I have no doubt that some of those houses will eventually end up in some form of default.
I'm thinking the standard practice of requiring a prospective renter to pay a $20 fee so the landlord can pull their credit report may have to be reversed. Renters might be smart to ask for a credit report on the owner before signing a lease.
I'm thinking the standard practice of requiring a prospective renter to pay a $20 fee so the landlord can pull their credit report may have to be reversed. Renters might be smart to ask for a credit report on the owner before signing a lease.
Yeah seriously. I didn't even want to bother with this issue so I just rented an apartment home from an established company. I could hardly buy a shoe-box for what I pay in rent.
I started to rent from this Company last winter, they are now offering $100 less on rent. The place seems to getting emptier and emptier too.
I could buy right now. I can afford it on my current monthly income. Would it be smart? No way. Not when Obama is probably going to come up with a "New Deal" type program so people can buy homes again.
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