Will higher rents lead the new cycle....... (Mesa, Chandler: sales, rental) - Phoenix area - Arizona (AZ) - City-Data Forum

khuntrevor · 05-22-2011, 09:53 PM

Any thoughts on this? I keep hearing how tough it can be to find a nice 3/2 rental home in a close in area. We know homes are selling for way less than replacement cost, but that doesn't seem to be causing too much excitement.
Could it be that payments much lower than rent will drive people to buy? Or is the pool of buyers, who can get a mortgage just too small?

hart4july · 05-23-2011, 04:14 PM

In our personal scenario, we can afford the payments on purchase of a nice 5 bd pool home in a nice area with 10% down, but in the same areas we are only able to rent a nice smaller 4 bd (2000 sq ft)play pool home. So yes, if you can put at least 10% down, you can live in a much nicer home if you own rather than rent apparently.
I was a bit surprised by this fact, as I had assumed lower home values meant lower rent,but not so much. If we could rent what we really wanted for less,we may be rather less motivated to buy in the next few years.

Captain Bill · 05-23-2011, 05:22 PM

Quote:

Originally Posted by hart4july

In our personal scenario, we can afford the payments on purchase of a nice 5 bd pool home in a nice area with 10% down, but in the same areas we are only able to rent a nice smaller 4 bd (2000 sq ft)play pool home. So yes, if you can put at least 10% down, you can live in a much nicer home if you own rather than rent apparently.
I was a bit surprised by this fact, as I had assumed lower home values meant lower rent,but not so much. If we could rent what we really wanted for less,we may be rather less motivated to buy in the next few years.

One poster, some time ago, predicted that the market would turn around when the home prices dropped so that mortgage payments equaled rent payments.

khuntrevor · 05-23-2011, 06:19 PM

The difficulty with obtaining a small mortgage or a mortgage on a condo has got to be a turn-off, or deal breaker for a lot of first time buyers. The low end is probably where the rental premium is greatest.

hart4july · 05-23-2011, 07:04 PM

As Captain Bill knows we are pre approved but we want to be sure that its wise to buy. We are gun shy after the 1 year to sell our last home.

Part of me hopes the market turns around as that would be good for the economy and all the people upside down on their mortgages, but i am admittedly glad that we still have some time before the market goes up substantially.

Its frustrating to me that larger homes are not that much more to buy, but definitely more to rent! We are the ones to pay the A/C bills!

Captain Bill · 05-23-2011, 09:18 PM

Quote:

Originally Posted by hart4july

As Captain Bill knows we are pre approved but we want to be sure that its wise to buy. We are gun shy after the 1 year to sell our last home.

Part of me hopes the market turns around as that would be good for the economy and all the people upside down on their mortgages, but i am admittedly glad that we still have some time before the market goes up substantially.

Its frustrating to me that larger homes are not that much more to buy, but definitely more to rent! We are the ones to pay the A/C bills!

I'm not seeing much price increase here in Gilbert or Mesa. I am seeing some shift of buyer interest toward the regular sales in good condition. They're getting the multiple offers at and above list price in all price ranges. But the prices are still a bargain, in my opinion.

The homes in Chandler in the Alma School corridor from Ocotillo area to the 202 have 3000 sf homes in good condition listed and selling in the $110-$125/sf range. This is in the area of the Intel plant and they are adding jobs.

In Gilbert the same home is around $100/sf.

I would be surprised if we were to see a large price increase the rest of the year because we will soon be entering into the slow season. The number of sales may stay higher than normal, but they should still decline for the rest of the year. I think your timing is still going to be ok.

The market has been improving for two years in that the supply has been declining for that long, and the sales have been increasing during that time.

That has caused the prices to be flat for 5 months straight. In my opinion that slow turn around is healthy. If we begin an increase in prices of 3-5% a year it should keep up with inflation and possibly be back to a balanced market.

ChiGirlAtHeart · 05-23-2011, 10:21 PM

Quote:

Originally Posted by hart4july

As Captain Bill knows we are pre approved but we want to be sure that its wise to buy. We are gun shy after the 1 year to sell our last home.

Part of me hopes the market turns around as that would be good for the economy and all the people upside down on their mortgages, but i am admittedly glad that we still have some time before the market goes up substantially.

Its frustrating to me that larger homes are not that much more to buy, but definitely more to rent! We are the ones to pay the A/C bills!

I think its because the people who are renting their houses are renting them to your for what their mortgage note currently is. So if they paid a mortgage of say 1800- then they don't want to rent it for less than that because that would mean they would need to make up the difference.

I just mentioned this on another thread, because I'm looking to relocate to the area- and I'm like "why would I pay 1800/mo to rent a house, when I can BUY one for maybe 5 or 600 a month"

khuntrevor · 05-23-2011, 10:28 PM

Quote:

Originally Posted by ChiGirlAtHeart

I think its because the people who are renting their houses are renting them to your for what their mortgage note currently is. So if they paid a mortgage of say 1800- then they don't want to rent it for less than that because that would mean they would need to make up the difference.

I just mentioned this on another thread, because I'm looking to relocate to the area- and I'm like "why would I pay 1800/mo to rent a house, when I can BUY one for maybe 5 or 600 a month"

I don't have a mortgage at all and get 569 per month for my 703 sf loft townhouse. The next Light Rail extension will bring a stop 400 yards from the front door--I am expecting a 20% rent increase after that event. I still see rents creeping up now, but not like that.

Potential_Landlord · 05-23-2011, 10:54 PM

Quote:

Originally Posted by khuntrevor

Any thoughts on this? I keep hearing how tough it can be to find a nice 3/2 rental home in a close in area. We know homes are selling for way less than replacement cost, but that doesn't seem to be causing too much excitement.
Could it be that payments much lower than rent will drive people to buy? Or is the pool of buyers, who can get a mortgage just too small?

There is something to be said about that. Rents put a floor on housing much better than replacement costs. When there is a glut of units replacement costs don't matter (as we're seeing now), but if you can rent it with decent security for amount X, then the PITI payment for a purchase will not likely go below let's say X-25%.
Now you say that interest rates obviously play an important role in this calculation as they influence the PITI payment massively (by far the biggest factor). So when interests go up PITI payment grows. However, if you correlate rents to interest rates (for example LT Treasury bonds) then you find that there is an amazing positive correlation - rents grow better when interest rates are high. That's why we had double digit rent increases in the 70s and early eighties and rent increases have trended down for 3 decades along with interest rates. So the relationship between PITI and rent payments holds up even accounting for interest rate changes.

khuntrevor · 05-23-2011, 11:12 PM

But now the tricky part is that you almost have to have cash to purchase a condo or a lower cost house. I don't think we've seen this before. Are the effective rates the 15-18% with 30% down the hard money people are talking? It's hard enough to get a realtor to show you a 25K condo--a mortgage broker? Forget about it......