patrick.net

Thanks for the feedback. The quality of the neighborhood is cancelled out of the rent/buy ratio. It's the same neighborhood on top and bottom of the ratio. The only question is whether to rent or buy there.

Low interest rates and the tax deduction don't actually help buyers. They simply raise the cost of the house by increasing the amount of debt that buyers can take on.

I follow the Hollister and Morgan Hill markets somewhat closely, and I agree with your conclusions, specifically:

Hollister - 8.5% - Home prices have corrected back to 1999 levels and even further in some cases. Some home sellers in Hollister are sane, but there is still plenty of insanity. But I don't expect the properly priced homes to decline much further in value there. Appreciation will be very, very slow there, as it's allure as a bedroom community is not easily understood. LONG commutes, corrupt local government, horrible schools, community apathy, no local career-type jobs, a gang problem, and too many existing homes all conspire there.

Morgan Hill - 3.7% - Homes still massively overpriced, and some landlords are in la la land. I really don't understand Morgan Hill sometimes. The schools suck, for the most part, and the commute in to north San Jose/Sunnyvale is horrible, too, although much better since they widened 101. It also takes forever to drive anywhere in Morgan Hill because they seem to have a signal light every ten feet, and they're always red, it seems.

SF ace says

We live in a a bay area where you can get 30 years fixed rate loans at 4.75% and write off 35% in federal and state income tax so when you layer in those pieces, even in the expensive places, it is cheaper to own than to rent and why 3% is not neccessary as bad compared to 12%.

Yes, the details are complicated, but the brute force of the ratios overwhelms the details. It's simply not possible for it to be cheaper to own if you can rent the same thing for 3%. The mortgage is at least 4.75%, definitely more for jumbo, and you really have to pay it and it's really totally gone. Paying it with pre-tax money doesn't change that. And then you have property tax, maintenance, earthquake insurance, which the renter does not have. Then there's the opportunity cost of tying up the downpayment, and the real risk that the downpayment will get wiped out by falling prices. But it's also true that the renter usually pays rent with after-tax money. So a lot does depend on your personal financial situation.

But I maintain that those details basically cancel out, and the ratios are good predictors of whether or not it makes sense to buy.

I recommend the NYT rent/buy calculator for people who are evaluating something that might go either way.

Thanks for the chart. I'd be very curious what those numbers look like at various points in in the past. I'm guessing the RE industry has no interest in making that data easy to crunch since it would not look good for them.

Anecdotally, I lived in a 2BR place in 94110 in 1998 that had a rent of $2000. We'd just moved in so it was market rate, i.e. no rent control. There was a very similar place down the street that sold for $380K. That's a 6.3%. That's a quite a bit more reasonable that 3.9%!

E-man says

I am 100% in the tank with SF ace. Is it possible for you to gather and post rent/buy ratios for the BA in 1989 and 1997? With this data, I believe it would be clear why owning is cheaper than renting.

Not sure how to get historical data. Suggestions appreciated. Craig himself of craiglist refused to give me old rent ads, pointing out it's work for him to extract the data and not much reward. OK, no reward.

Old house prices might be easier since they are officially recorded, unlike rent, but still not sure where to get the data. Counties don't actually give the data for free. You have to pay, then decode their format...

SF ace says

Say if the rent increased by an avergage of 2% a year,

My own rent for the same place is still lower than it was 10 years ago! I got a reduction after the dot-com bubble burst. Don't count on that 2%.

My own rent for the same place is still lower than it was 10 years ago! I got a reduction after the dot-com bubble burst. Don’t count on that 2%

We had nearly 1.1M in the workforce back in 1999, now down to mid 700k's. So there isnt a demand.

As is the same case with commercial RE. We have a GLUT of nearly 20% vacancy in R&D parks. The highest since the the late 80s bust. Some of the occupied R&D buildings have being converted to Churchs and small retail outlets, can see this in Sunnyvale too often. Tells you of the job picture.

I really dont see any increase in demand down the road for rental properties much into next decade since we are not growing locally. City goverments need to rezone more residential areas for development.

Eventually more of the vacant R&D space will be converted into housing to get revenues flowing from property taxes.

E-man says

@ MarkInSF,
Common man. The numbers might be off here and there somewhat. Don’t nick pick on every details. You should be thankful that Patrick compiled and made the data available to us for free.

Not nitpicking. Just adding an anecdotal data point for what the ratio was like 12 years in the past.

The real estate industry is highly protective of market data, especially in the past, since it gives them an advantage. So it's not surprising this kind of past data is hard to come by.

SF ace says

and lastly, homes like grocery shopping are not neccessarily price sensitive, if so everyone will be grocery shopping at Walmart instead of Whole Foods. I think PKennedy asked an interesting question previously, renting is nowhere near the quality of buying and anything above 5% probably have serious flaws with regards to the location so they are a deal breaker to someone like myself as a primary residence.

SF Ace, all of your augments seem to be qualitative, but they never seem to have a suggestion of what a fair price to pay is. It seems you think it's a good buy at any price. I can accept the hypothesis that some markets have always been more expensive than would be justified by a price-rent ratio - that there would be some kind of "premium" because of the factors you mention. It intuitively makes some sense, though I haven't seen clear evidence of that.

What I have not seen you address is why that "premium" would significantly change over time. If the "normal" price/rent for say Palo Alto is 20, what would cause it to rise to 30? The tax advantages and all the other factors that contribute to the premium are the same, so why the rise in the premium?

Another post pointed out the the ratio of the price per square foot in Belmont vs. Hayward has gone up 30% in 10 years, and similar premiums can be found by other pairings of high end bay area markets to other markets. So why the change if it is not just a lagging deflation?

Patrick, as always I think your data is right on. We rent a stunning spanish house in Milbrae @ $3000/month. Zillow as well as recent nearby home sales (and current "for sales") rate the home above $1.1 million. To buy this same home, and bring the mortgage down to our rate, we'd need so much cash that we'd have to forgo any nest egg we have built up - and we pull in a decent @ $250k/year income. And that includes accounting for tax savings after the fact of paying the mortgage, insurance, upkeep, etc.

No one can tell us its a "great time to buy". Or that renting gets you a less desirable home. Meanwhile we have enough liquid cash to last 3 or more years out of work if necessary, with yet more saved each month - something all my home owner friends wish they could have. Sure inflation could out a damper on that some day in the future, but not for the next few years while the Fed keeps the banks fat.

I am also renting and looking for a new rental. It seems like all of a sudden all the rents have gone up where I am looking to 4-5K per month for something over 2k sqft and remodeled. I think the word is out on Lamorinda because the rents there have skyrocketed for dumps or small places which last year went for $2500-3k...now I see people asking absurd amounts for small homes like these:

http://sfbay.craigslist.org/eby/apa/1653919937.html

http://sfbay.craigslist.org/eby/apa/1652628419.html

http://sfbay.craigslist.org/eby/apa/1647886248.html

Not sure what to think about this. It is cheaper to find a decent place in Los Altos or Palo Alto than take one of these places in Lamorinda. I think people found out about how great the schools are.

I'm renting at a 2.5% margin in Millbrae. Rents have not come down up here at all in spite of the housing collapse, at least for houses. On the other hand, they have not gone up.

At first, I think the data is right on in my surrounding area, was living in 94086 and moved to 94087 some 5 months back. Its still higly overpriced, I am paying 1900 for 3/2 and which would cost me about $800K to buy.
samsmom says

I am also renting and looking for a new rental. It seems like all of a sudden all the rents have gone up where I am looking to 4-5K per month for something over 2k sqft and remodeled.

I have seen exactly the same behavior for the past couple of months, it seems last october was the lowest price. There was a house just came out for $2895 like this one:

http://sfbay.craigslist.org/sby/apa/1650135317.html

I still think lot of people are asking their wishing price even for rents. Hey, may be the economy took a v-recovery.

SF ace read the erroneous NYT article about paying down your mortgage and is repeating it as if it is fact.

I love this line too:

"So when you put to two together, high % places are candidates to invest in and low property ratio are candidates to live if it is cheaper to own then to rent, which can happen even in a 4% ratio property."

It's a great time to buy or sell RE right SF ace?! Real estate agent trolls need to find somewhere else to practice their BS.

I rent for $2200 and the realistic price to buy the place is $650k (zillow says $760k). at $26k/$650k = 4% ratio. I really do hope I can buy a place on the peninsula one day, but at the moment it just doesn't make financial sense. It might be another couple years before the euphoria of home ownership as a get rich scheme goes away. That's when I'll really start looking to buy, when interest rate rises and home prices drop and people start to question home ownership as a long term investment.

Patrick,

Thanks much for this data. I find it to be accurate for my neighborhood. I live in San Mateo, 94403 and I'm renting for $2,250/month and a house down the street is on the market for $648,000 which is 4.16%.

My personal metric for affordability has been 200X monthly rent at the high end with 180x being ideal. This would mean a price/rent ratio of 6% minimum and an ideal ratio of 6.67%. That sound about right?

There are probably a couple other points that should be made about renting vs buying. Buying does have the allure that household improvements are making your life nicer, where as household improvements on a rental are areason for them to jack the rent, since you're less likely to move now and a reason to charge you for "undoing" the changes when you do decide to move, making those changes costly. Unless it's a private property, one off land lord, changes are that the house is a semi-dump. Or the worst house on the street. Buying has a lot of attractions there for me.

Rent hasn't gone up since 2000 in most places, but I think it would be more fair to compare rents of 1995 with today. 1998-2001 saw some insane rent hikes. It was a bubble in itself! 2% a year is probably pretty realistic.

The population of california is set to double in 15-25 years. So while people say there aren't jobs, there will be jobs to support all those people. People want to live here, immigration is constant, there are new children coming into the work force all the time. There will be more demand over the long run. Whatever job losses we're having now, will change. Intel might not be able to hire them alll, but the large corporations aren't the largest hiring sector anyways, it's the small businesses that are. So assuming rent will go up, prop 13 isn't going anywhere (cry all you want guys, but there is big money backing that thing!), buying is probably a decent investment in california.

Nothing is a good idea during a bubble. Outside of a bubble, real estate has historically been a pretty good long term investment, and one that is harder to lose than most other investments. So I'm siding a bit with E-man and sface. I think we're getting close to a position where personal property buying is not a bad idea. Even at some of these lower rates in the 4-5% range.

My personal metric for affordability has been 200X monthly rent at the high end with 180x being ideal. This would mean a price/rent ratio of 6% minimum and an ideal ratio of 6.67%. That sound about right?

Yes, that sounds about right to me. The first subscriber to my Landlord's Bargain Finder said he would not buy anything above 100x monthly rent, but that's 12% or so, which is pretty damn cheap. I think somewhere in the range of 6% to 7% is at least reasonable, though not very cheap.

Simple conversion formula for multiple of monthly rent (GRM) to percent return:

12/GRM = percent return

Thanks for the chart.

I'm not sure "fixing the cost of living" is such a clear factor. For the family that knows it will never need to move no matter what, fine. If that family exists, it certainly is not the norm. Career change, job loss, divorce, and declining health (requiring assisted living, or one-story housing, etc.) all happen to normal people. Many find that they have just inadvertently paid *absurd* housing costs for several years when they sell. This often includes unexpected maintenance (or deliberate renovations that don't add value dollar-for-dollar), depreciation, and realtor commissions (one buying, one selling).

I suppose I am a product of my era -- whatever may have happened with inflationary spikes in the past, the painful experience of my peers is that buying a home brings financial volatility (and, most often, significant financial losses) to those who suffer any of a host of common occurrences. The picture gets worse and the risk level only increases when one considers that this has all happened *without* significant interest rate increases, which would effectively destroy current resale values. 2% rent increases just are not as frightening a prospect to most people as the financial harm they may suffer if they buy and then have to move.

samsmom said: I see people asking absurd amounts for small homes like these
I must say, those read like the same ad to me with different lease lengths (discounting for the longer terms). It also suggests the landlord is fishing; can't blame them for trying.
I think people found out about how great the schools are.
This is really the big unknown as schools in weaker districts crumble under the budget crisis. Good areas should see a boost, but if prices get too out of whack, folks may go private.

If a person can live in a home with a decent potential rental option, then moving shouldn't be as much of a problem. Assuming they are sticking with the home for 5-7 years, they should be able to easily rent it out at that point. They could move into a rental or purchase a secondary home. Benefits are numerous, including the capx savings, when a sale does go through, vs selling a pure rental unit. Upgrades might not yield a 100% return, but often they'll give back a 50-70% return, depending on what they are. Essentially you're paying 30-50% to have a nicer living space for 5-7 years.

Life has a lot of unknowns, and it's impossible to plan for them all. A house might be a very illiquid asset, but it's still a pretty decent asset to have. In the event of most financial turmoils, it'll fair better than most other options out there. The loss of a job or medical expense can be brutal on your economic position. If you're a renter and stuck in a lease, you're stuck. If you've got a house, you could either rent the whole thing out, hopefully reducing your monthly bills or pick up a couple of room mates and keep living in it. While some might not like this, it's an emergency plan, and if you're in an emergency, then things have to give. If your plan is to move out of your apartment and move in rent-free with parents or some friend, well you can do the same with a house, you just need to find some tenants. Hopefully this happens after a few years, and rent has appreciated a little. All in all, there are solutions to having an illiquid asset, and there are some good benefits.

Personally, as a renter, I currently rent cheaply, and then pour that saved money into better household decor, after it's purchased, I just save the rest. I figure if I'm going to give up living in a nicer rental place, I can offset that by putting really nice things in my apartment to counter it. So I end up in a situation where I'm saving far above and beyond what my mortgage costs would be. I personally have a lot of time to wait for housing to stabilize, but if my rent was 3/4 of a mortgage payment I would probably consider buying now. Currently, it's probably 1/4 to 1/3 of a mortgage payment, for a house I would consider purchasing. Eventually I'll get bored of renting and switch over. It's nice to see some prices inline with what I would be willing to pay.

Excellent data mining effort. However, this analysis is not entirely correct. The rent in a neighborhood does not vary a LOT between "Low-to-High API" school districts in bay area, but the home prices vary a LOT.
By this analysis the Best places to buy are really "Low to High API" school districts.

Eg: 95130 zip code is interesting. The reason it is 4.1% is because half of the zip code falls in "High API school" and rest in "Low API-school" district. Rent for ~1500 sqft goes for ~ 1800/- to 2000/- across the zip code BUT the homes in the good school district are way expensive than 400K. So, really there is premium people pay for good schools in any market.

I completely agree that the prices are over priced, but I really DOUBT that the rent/buy ratio will go to 6% or 9% for good schools.
For Bay area we should have a slightly different scale:

Good: 9% Low API school district
Good: 6% High API schools

Fair: 6% Low API school district
Fair: 4% High API schools

Bad: 3% Low API schools
Bad: 2% High API schools

School districts don't explain anything, because the same school district is on both the top and the bottom of the ratio. It cancels out.

All things are held equal by the ratio. It's the same location, the same school district. The only question is whether to rent or buy.

Believe it or not, renting does not kill children, nor stunt their growth. In fact, it helps them if they are renting in a better school district than they can afford to buy in.

I bought in Redwood City in the 94062 area code, and got in ROUGHLY at 4.5%-5% ratio, and that was after serial lowballing in the area. The original asking price had a rough ratio of 3.0-3.5%. (I know exactly what the house next door rented for, and how long it took to rent, and it's exact condition/size/etc, since it's owned by a good friend of mine.)

I don't feel I got a good deal at all, and I fully expect house prices to fall further.

It's not a 'good buy' until 10% no matter where it is. A case could be made for it not sucking at around 7.5-8%. Some neighborhoods will almost never be a 'good' buy, and you can argue which neighborhoods will always be 'premium', but it doesn't really matter.

And I define 'good buy' as 'cash flow positive', not as 'the cheapest you'll ever get this house.'

If an area bottoms out at 7% ratio, it's not a good place to buy from a cash flow perspective. If you don't care, then go ahead.

@SF ace

Amazingly well written. Everything rings true. I especially like the point you made on income divergence between a 200K and a 1M purchase price. The 5X salary is still saving, while the 200K salary at 3X is most likely struggling.

I never thought of divergence in terms of tax benefits though, interesting.

Here's another thing to consider when renting... owners that will rent you the house while they still live on the property...

http://sfbay.craigslist.org/sby/apa/1652163564.html

$2,700 per month for this place in Morgan Hill. Comes with live-in owner. lol

Congrats SFBB on your recent home (or condo) purchase. First surfer-x, then Peter P, and now you (who's next?) Hope you are sleeping better at night (the kid, not the house ;-)

pkennedy says

The population of california is set to double in 15-25 years. So while people say there aren’t jobs, there will be jobs to support all those people. People want to live here, immigration is constant, there are new children coming into the work force all the time. There will be more demand over the long run. Whatever job losses we’re having now, will change. Intel might not be able to hire them alll, but the large corporations aren’t the largest hiring sector anyways, it’s the small businesses that are.

The issue is we are not growing "new" companies. This was made painfully clear a few years back by the SJMerc when they published their SV150 back in 2007-08. There is a decline in small companies coming on line and near zero going public to raise funds for expansion, which will fuel job growth. As for the current crop of small companies, many may find them being acquired for their technology IP, rather than workforce.

I suspect that renters are less likely to have kids than are buyers.

This could explain why rents don't go up that much more in better school districts, but prices do. When I did not have kids, and rented, I did not care about school district. Neighborhood, yes, school district, no. Now, I have kids, and bought, so I was willing to pay a school district premium.

It is absolutely true that this means that renting in better school districts is a better deal on a month to month basis than is buying. Long term, don't know. And it's important to remember that some people aren't looking to spend the absolute minimum on housing. Different people value different things, and there's nothing wrong with that.

Looks like growth has gone south.. as was reported months earlier, "Californians" are moving to Texas and the South...

NEW YORK (CNNMoney.com) -- Don't mess with Texas! Cities in the Lone Star State were among the fastest growing places in 2009.

http://realestate.yahoo.com/promo/census-bureau-dallas-posts-biggest-population-gain.html

Dallas-Forth Worth and Houston gained the most new residents of any city -- netting more than 140,000 each -- according to the Census Bureau's annual metropolitan area population estimates released on Tuesday. Meanwhile, music center Austin posted the second highest growth rate among top cities -- 3.1% -- just behind Raleigh, N.C.

thomas.wong1986 says

Looks like growth has gone south.. as was reported months earlier, “Californians” are moving to Texas and the South…

Well Southerners like me have been moving to California for years. We "loaded up the truck and moved to Beverleee!"

And if now it's someone else's turn to get invaded by Clampetts, well PUCKER UP BUTTERCUP and quit your bellyaching. Dadburn Drysdales....

SF ace says

m1ckey6 says

SF ace read the erroneous NYT article about paying down your mortgage and is repeating it as if it is fact.

I love this line too:

“So when you put to two together, high % places are candidates to invest in and low property ratio are candidates to live if it is cheaper to own then to rent, which can happen even in a 4% ratio property.”

It’s a great time to buy or sell RE right SF ace?! Real estate agent trolls need to find somewhere else to practice their BS.

Mickey, I can assure you I am not a realtor or anything related, so no offense taken and I not sure about NYT as I actually read local newspapers instead. I am neither bullish or bearish on housing, but this is a blog of points and counterpoints so I just inject what I see from my perspective, nothing more, nothing less.
Actually, I ran into this site a few years ago “Googling” Marina SF. The big topic of the day then (around 2007) was fortress on Marina SF vs. price must come back down to earth. I was always fascinated to learn why a condo and homes in that area were asking/selling for well over $1,000 a square feet. You figure after the 1989 earthquake, there was no way people will pay that much for landfill?
Reasons why I think there is a divergence of rent/buy ratio and partially MarkSF questions:
1) The tax benefit is uneven. A typical home buyer in Vallejo will rarely see any or very limited income tax benefits while a buyer in Cupertino will be able to utilize the tax benefit to the fullest potential. (0 -35% range) It is fair to say the bigger the price difference, the more valuable it becomes and creates bigger divergence.
2) The benefits of low interest rate is uneven. The effect of lower interest rate is much more impactful to a borrower in a prime zip. Buying cost is a function of interest rates, so if interest rates decrease and borrowing cost decrease, it creates a rent/buy ratio divergence so historical comparision of rent/buy ratio without an accompany interest rate difference is meaningless.
3) The benefit of prop 13 is uneven and is much more valuable to property owners in prime zip thus supply is severely restricted in prime zips. Prop 13 is more valuable today than in 1997 or 1989 as the market basis and taxable base did not diverge in absolute $$ evenly.
4) The impact of this deep recession is uneven. Both in terms of wages and net worth.
5) The impact of foreclosures is uneven. It is hard to find a homeowner underwater in prime, and even less severely underwater.
6) The impact of high housing price is uneven as a high earner/high net worth can absorb the impact of high prices much more easily since other fixed costs are mostly the same. It may take 3X annual income to buy a 200K home, but a person buying a 1M on 5X annual income is still saving a lot more.
7) Personal value is uneven. All my collegues who bought recently does not consider living in shady zip codes and is price insentitive to a certain extent. and most important IMO.
The supply of new single family homes added in the past is uneven. 94127 has not added one single family homes in a few decades even while the prices rose from 100K to 800K while the bay area population expanded from more than 5M in 1980 to closer to 8M currently. Ditto for Berkeley Hills, etc. No new expansion in sight. As the population continues to grow, it is a safe bet that the divergence ratio will continue to diverge as more and more people are added into the mix.

Well put! .. This is exactly what I meant by Bay area home prices being skewed. The "Expensive" neighborhoods generally tend to have good schools and are in high demand.

Areas like Saratoga, Cupertino, Los Altos have very limited new development. So, even if the prices have dropped > 20% in these areas, they will not fall to the 3%-6% range of renting.

So, it really comes down to :

From cash flow point of view Renting in the High API school districts makes sense. However, if someone is WAITING for prices to drop in these areas to 3-6% range I highly doubt that's happening.

I think Patrick did a nice job (and a lot of work) on his table; however, everyone needs to recognize that this is a snapshot of a point in time. Regardless of all the percentages of rent vs. buy, no one really can predict what will happen in the future. There is no guarantee house prices will be higher in "5 to 7" years. That has been the standard claim in recent time(30 yrs) but when you look at home prices over say 100 years(minus bubble years cause that was fake anyways) housing prices have only risen 2% per year.

When you bank on predictions of rising rents and house prices what do you base that on? Is it written into the future that California will really boom in jobs? First rule of investing- past performance doesn't guarantee future results. Same goes for population growth. Aside from illegal immigration, California is losing population. Most people who come here from elsewhere people are appalled by how incredibly expensive to live here unless your making in the six figures. In addition has anyone noticed that jobs are drying up. My particular job is incredibly recessesion resistance but I have been losing some hours of late. Where is this explosion of new jobs going to come from? Construction and development? Seems to be half of what it was at best. The gov gonna have some super duper projects? I think the muni's and the state have pretty much shot their wad. Maybe the fed but they're up to their up to their asses in bailouts and stimuli. Oh, i know, a world war. Opps, we are already in two wars- oh well, why not throw in Iran and north Korea. Should be good. Sure hope we don't run out of money (or will) before we win.

I don't really see any reason to believe that cal is going to have some miracle recovery anytime soon, maybe not for decades. And that albatross of declining real estate prices could hamstring many a plan both for owners and investors if deflation takes hold.

I agree with deanrite. Japan is my favorite example. It's far more crowded and expensive than California, and they're not making any more land there, yet prices fell every year for 15 years, and are still not rising.

True, all kinds of things could happen that makes it a good deal (hyperinflation) or bad deal (earthquake) to buy in California.

Because we can't know the future, I think it's best to go by fundamentals, the way Warren Buffet invests in stocks.

going to correct over next 3 years

My zip code is accurate, rent is 3% (or less) current asking prices. The place sold in 2006 for $979,000. Neighbors just bought a nearly identical place for about $940,000. The HOA is $435. One would have to put down $500,000 at LEAST to come close to my monthly rent.

What are the odds of the government phasing out the MORTGAGE interest deductions for home mortgages... Like they did in some European countries over the course of a 12 year or so period of time until it's totally phased out?

It seems like this would be a practical way for the government to get out of it's national deficit relatively quickly?

rmm221 says

What are the odds of the government phasing out the MORTGAGE interest deductions for home mortgages… Like they did in some European countries over the course of a 12 year or so period of time until it’s totally phased out?
It seems like this would be a practical way for the government to get out of it’s national deficit relatively quickly?

I think unlikely, it's pretty damn popular. But on patrick's front page today is this: http://www.nytimes.com/2010/03/23/business/23views.html

pkowen says

rmm221 says

What are the odds of the government phasing out the MORTGAGE interest deductions for home mortgages… Like they did in some European countries over the course of a 12 year or so period of time until it’s totally phased out?

It seems like this would be a practical way for the government to get out of it’s national deficit relatively quickly?

I think unlikely, it’s pretty damn popular. But on patrick’s front page today is this: http://www.nytimes.com/2010/03/23/business/23views.html

I'm not sure removing the deduction makes sense. Not unless you're going to completely rewrite business tax law too, where interest is no longer a business expense. If the deduction is removed for homeowners, but landlords still get to deduct it, that would be completely absurd.

This actually deserves a whole thread of it's own.

Based on a lease we just signed in December, 94402 in San Mateo looks just about dead on at 3.3%.

People ask us often why we're not buying right now - we could certainly afford to. The questioning often ends though when we take them through this logic about how much you're really paying right now (essentially in rent to the bank and gov't) if you're buying at too high a price.

Another consideration in places like San Mateo or other expensive peninsula cities - you don't get to deduct property tax if you pay AMT. So for higher-end homes where mortgage interest deductions are capped at loan amounts of $1M, if you're also paying AMT, then the effective rent to the bank is really quite high. Say 6% for the jumbo loan, 1.25% in property tax, and maintenance and insurance. Even if you get 1/3 of the interest back, that's still some 5.5-6% in cash out the door. Our rent (for a very nice, large 4.5/3) is the 3.3% ratio. Hard to argue with paying about half-price!

And to echo an earlier comment, you can most certainly rent in the high-scoring school districts at the 3.5% level these days. I saw many examples of that over the past few months. You get the same schools, just for half the price!