After much thought...just doesn't make sense. (Locke)

[havoc315]

Originally Posted by popham

Pauly
I think your first analysis was correct. Things have changed now, and it is no longer a given that it is better to rent then to own. I think people just assume that it is better to own, but if you do the math in this market, maybe not. The NYTimes has a rent/buy calculator to help you do the math. The carrying cost on a house in Westchester is at least $6000 per month. You can rent the same home from the owner for maybe half that. There are plenty available now since people cannot sell. This will likely keep prices on their downward trajectory. I don't know if prices will keep falling, but what is the reason prices would start to zoom up?
Higher salaries? No.
Lower unemployment? No.
Interest rates declining? No.
Lack of supply? No.
Easy credit? No.
Prices at historical lows compared to rent? No.
Prices at historical lows compared to income? No.

Your analysis is flawed in many places.

First off, $6000 is hardly a minimum. I own, and my monthly costs are significantly less than that.

Secondly, you will very rarely find a house renting for "half" the carrying costs. Think about it, if the owner is paying a carrying cost of $6,000 per month on a particular house, why would he then rent it out for $3,000 and take a 50% loss? Now, I fully acknowledge, in this horrible market, you do have some owners renting their places out at a loss, but generally not a 50% loss, and it's still just not that common. The rental rate is usually pretty similar to what you are calling the carrying cost for the owner.

Next, you can't forget that many of an owner's "carrying costs" are tax deductible, while a renter gets no tax breaks. Mortgage interest and property taxes are both deductible. Thus, a Westchester, that $6,000 carrying cost might be half tax deductible. So after a tax refund, that $6,000 could be more like $5,000.

Next, in terms of prices-- Nobody really knows much. Some people think prices will continue to drop, definitely a possibility. Some think they will start to increase, also a possibility. For now, the prices have stabilized, but it's impossible to predict the short-term future. But in the long term future, it's highly highly unlikely a purchase would lose value -- If you held it for at least 5-7 years. Not saying it's impossible, but highly unlikely.

To look at your factors -- Interest rates may not be declining, because they are already at historic lows. Fear of increasing rates, could drive people to buy before they expect the rates to increase.
Similarly, Congress is talking about expanding the First-Time Buyer Tax Credit, to cover non-first-time buyers as well, which would also cause an increase in prices.

While unemployment has not leveled out yet, the steep worsening of unemployment has stopped for the moment. There are reports of increased hiring in some areas. The worst is probably over, though it might be a while before we see significant improvement.

You claim incomes and salaries are not rising. That's an over-generalization. Yes, there are Westchester residents who have suffered. But there are plenty of Westchester residents who are doing better than ever. Goldman Sachs expects to pay record levels of compensation this year. Westchester's many physicians and health care workers continue to be in demand, and continue to do exceptionally well.

I'm just point out, there is no clear cut future. Certainly, for some people, it would make much more sense to rent. But if you plan on staying in one place for at least 5-7 years or more, it's probably a great time to buy.

[PEmom]

popham,

If you read carefully, I did not say to buy NOW. I just said in general I prefer to own a house as it gives me a stronger sense of home. Financially I think it depends on lots of factors when you compare rent vs buy. I do believe price still has downward pressure.

[Dockside]

Originally Posted by havoc315

And when you buy, you get a tax deduction for mortgage interest and the property taxes.

What Washington gives, they can take away. This a tax-hungry time in DC, I wouldn't be surprised to see some serious nibbling around the edges of this tax break.

[popham]

Of course I want to own, but it doesn't make sense right NOW. Houses are still overpriced and the reality is people are loosing money. Houses ARE selling for less then they were purchased for 4-5 years ago. I went on trulia and saw a house in Eastchester for sale. They are ASKING $515,900 after a series of price chops. However, the house was purchased on 08/05/2005 for $620,000. Add in your brokers fees and transaction costs, transfer taxes, and your looking at a 20% loss. People are in denial.

[popham]

Havoc, you are wrong. This is how it works-people are renting their houses for $3,000 a month, this covers THEIR carrying costs because they bought the house for $400,000. They go to sell the house and they want $700,000 for it. If you buy that house YOUR carrying costs will $6,000 a month. I'd rather rent it for $3,000 a month and have no tax increase, declining value and maintenance headaches.

[cali_to_nj]

I have had more maintenance headaches with our rental than when we owned. We are obligated to maintain the property at our cost to the satisfaction of the landlord and cover repair costs up to a certain amount, we have no say in how things are repaired or what constitutes a "required" repair. Dishwasher only amounts to a hot rinse but since it turns on it is not considered "broken", so we are doing dishes by hand. Carpet is stained from prior tenants and shampooing does not help, so we have to live with it or install new carpet at our cost for the enjoyment of future tenants. One of the windows is cracked and in order to get it fixed we need to remove it ourselves and drive it down to the landlord's designated place in Tuckahoe. There is something to be said for living on and in your own property, regardless of cost savings...

[havoc315]

popham.... You are wrong. Sorry to say it. Any professional landlord, like any other businessman, makes rational decisions to maximize profit.

So let's take your example -- The person who invested in the property, at $400,000. The carrying cost on such a property, in Westchester, would be around $3,000-$3,500. So that's probably where the rent was set, at first.
And the rent increased each year, in line with the property value.

Financially, it would make no sense for the landlord to continue to rent out the property at $3,000-$3500... If the property can be sold for $700,000.

You do get a few "amateur" landlords, who have to move. They don't get the price they wanted for their house, so they hope that the market will recover, if they wait a year or two, and rent it out. So perhaps they rent it out at a tiny bit of a "loss," but not nearly as significant as you describe.

But from a buyer's/renter's perspective, the market value is the market value.

So ok, let's use your example.

The owner bought the property in 2001 for $400,000. He wants $700,000 for it, but the current market price is really only $650,000.
Now, let's use some hypothetical but realistic numbers for the owner's options.
He can sell at $650,000 and make a one-time, $250,000 profit. If he then just puts the $250,000 in a typical CD account, or treasury bond, etc, he can turn a profit of $500-$1000 per month.
So option A -- sell it, make a profit of $500-$1000 per month, by selling.
Option B-- Try to rent it out at the equivalent value. So if his carrying costs are $3,500, if he hasn't refinanced, etc, then he needs to charge rent of $4000-$5000 per month.
So option B, charge rent of $4000-$5000 per month, to make a profit of $500-$1000 per month, and break even with the possibility of selling the property.
Option C-- If he can't get $4000-$5000, rent it out at a discount. You are suggesting this owner would discount all the way down to $3000 per month. So instead of a monthly profit of $500-$1000, this owner will be taking a loss of $500 per month.

So basically, this owner needs to choose between making $12,000 per year by selling at less than his idea price, or losing $6,000 per year.
Unless this seller is betting on a massive giant housing turn around in the next year or two, only a fool would choose to rent at such a huge discount over selling. (But it would be rational to rent, if they could get the $4000-$5000 per month in rent.)

Anyway, if the carrying costs for the house were $3500 for the original owner-- Then the new owner, buying the house at $650,000 -- Would be paying carrying costs of about $4500-$5000.
Very comparable to the reasonable rent that the rational owner would charge.

Don't take my word for it. Look up rental properties in Westchester. You don't find 700k homes renting for $3,000. Checking 1 website for my own town, the only $3000 rental available, was a small 2-bedroom townhouse. The cheapest regular house in half-decent condition was $3800, with most of the single-family reasonably sized houses, priced between $4000-$5000 per month.

[dma1250]

Originally Posted by popham

...DMA-how much was your house? Did you buy a long time ago? A $3800 mortgage plus $1200 in taxes and $1,000 a month in expenses, (gardening, electric, insurance, maintenance, water and heat (which are included in rent) adds up to $6,000 per month.

Electricitiy, heat, and water are not included in rent for a single family home. Lawn care is sometimes but not always. We explored renting our house a few years ago (had a year-long job opportunity abroad) and, working with our agent, came up with a rental amount that covered our mortgage, taxes, lawn care, and the price of a caretaker. The renter would have covered all of the other costs. In the end, the job did not pan out...

[popham]

You are talking about the way it *should* be - not the way it actually is. There are plenty of houses for rent on Craigslist right now. SOme of them sound desperate. A friend rented one. Another friend is renting out his property at a loss every month. What do you say to the owner in Eastchester whose property is for sale for $515,000 when he purchased it for $620,000 four years ago? You are right about one thing- the rent/buy ratios are totally out of whack. We are nowhere near the end of this bubble. People are still loosing their jobs. It's still too risky to buy in this environment.

[popham]

Also, I am a landlord in Westchester. It works because I bought before the bubble. But I would not buy now at these inflated ratios. You cannot buy a house now and rent it out and break even.