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Old 11-19-2009, 06:21 PM
 
Location: Everywhere and Nowhere
14,129 posts, read 31,253,676 times
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Quote:
Originally Posted by jbunniii View Post
For me the main indicator is that you can rent the same $827k house for around $2600-2800/month. I don't think the buy-versus-rent ratio has ever been so far out of whack, and I don't think it is sustainable. Either rents have to increase (but they're actually falling) or much more likely, house prices have to fall quite a bit more.
Not necessarily. The rental market is more driven by short term market conditions. Home prices also factor in long term appreciation. In that part of California it's reasonable to expect that prices will start rising again once the economy recovers. Incomes there are strong and as things improve should continue to produce further appreciation.
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Old 11-19-2009, 07:24 PM
 
Location: Madison, WI
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Originally Posted by CAVA1990 View Post
Not necessarily. The rental market is more driven by short term market conditions. Home prices also factor in long term appreciation. In that part of California it's reasonable to expect that prices will start rising again once the economy recovers. Incomes there are strong and as things improve should continue to produce further appreciation.
I guess we'll have to agree to disagree. Short of another ARM-fueled real estate bubble, I don't think Bay Area real estate has much upside potential (beyond general inflation) for the foreseeable future. Most housing is already priced at or near the absolute limit of affordability for buyers. A couple of years ago, it was priced BEYOND the limit of affordability, as evidenced by all the foreclosures that have resulted, with many more still to come.

It's true that rents do fluctuate, but they tend to track general income levels pretty closely because people can't pay rent with borrowed money (not for very long, anyway). Rents right now aren't much higher than they were at the peak of the dot-com boom, but house prices have more than doubled since then. (By the 2007 peak they had nearly tripled versus 1997 or so.) Thus my belief that they will correct back to their historical ratio to rent.
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