patrick.net

Let's see what the NY Times buy vs. rent calculator has to say about my example at 3154 Trafalgar Road, Fremont, CA that rents for $1,995 per month. It has a Zestimate of $547k (similar to the examples liveconfused highlighted). I'm feeling charitable, so instead of using the Zestimate, I'll say an even half million for the sale price (3/2 homes still appear to be going north of this amount, though). With factory defaults, break even is -- well somewhere over the rainbow. Obviously, you can start cranking some knobs and eventually get it to pan out, but not within a reasonable window (7 years). Fundamentals are taking hold, and the old timers are taking business away from the marginal cash flow landlords. How low can you go?

I guess that's why anecdotal evidence is pretty worthless. I know of two couples that sold within a few years after purchasing, and both were to move from a condo/townhouse to a house. Everyone else I know, once they purchased they haven't moved yet. Both sets of parents have been in their houses for more than 30 years.

SF ace said: Now the big elephant here...
I'm convinced the big elephant is the 35%ers. As DinOR used to point out, you deduct your 401k off the top ($33k for two income families). This drops a lot of these individuals/families down 10% for some (or all) of the interest/tax deductions. And zero percent down (give me a break on that one :-). I'll give you this, schools will stratify the different areas, and Fremont may have an attraction to the 35%ers. Appreciation is always the big unknown, and as leverage is involved, you can crank that knob and get results fast. That said, good luck with 2% the next couple of years. Also, my contention for that time period is flat or down on the rents...

If you're a solid 35%, chances are you're looking at something bigger. If you're not, I'd say good for you (you're at a multiple where you could make it on one income if need be). I do agree that at 35% you can move mountains. In Ess Eff, though, that is still condo territory...

When a guy come into the desk, asking 500K loan with no downpayment at 5% rate, I am pretty sure that the financial person will be laugh his rear off.

Not everyone can get that. Just to be little more realistic given the size of the loan, how about 5% DP at 5.5% rate? And the inflation rate for the last couple decades was like 3.5% though, just put that aside for a while and assume all other parameters are the same. What do we get? It will say, renting always is better than buying. If the rent is 2500 instead of 2000, sure, buying is better. So, that's as good as a calculator can get. The result is depending on the perspective of the person who uses it.

It doesn't matter if you're bearish or bullish. People always try to see what they want to believe from any data. Doesn't matter what the data is all about or how is it designed by whom. For instance, the C-S graph is basically telling me that, we're half way thru the recession, and 70% or bubble is still there. What it is telling you may differ. You guys can interpret it anyway you want to see.

As for the standard metric whatever that is... (BTW, is it Patirick's rent.vs.own analogy?)

Patricks analogy, and that old 15X home price vs rent analogy is generally true, and that's the way it should be. However, I have to stay with SF-ace on this matter at least at this moment. For those bubble area where income is relatively high, and presence of housepoors and investors... the place like SF area, part of NY and DC metro, things are not working like other area that already got hammered.

Now, the real question is that, is it possible for those area to get hammered like rest of the US?

I think it should be, but little skeptical about that as long as the government is not letting that happen, and as long as those people already had money from the bubble don't waste it.

SF Ace, and Nomograph, thank you for your long thoughtful posts.