Listing History: 6/3/10 - $1,387,000
Reduced down to - $1,299,000
Reduced again down to - $1,269,900
SOLD: 2/10/11 - $1,255,000
This house was on the market for 194 days before going into escrow. From the description, it was also available for rent at $4,600/month. Let's assume for the moment that they could get that rental price.
After putting 20% down, your mortgage payment on a $1mm loan would be about $5,700/month at 5.5%. Property taxes come out to another $1,200/month. You then need to factor in insurance, upkeep, etc but on the other side you have the mortgage interest deduction. No matter how you crunch those numbers, there is still a very big premium being paid to own. I think there has always been a premium to own in this area and there will continue to be in the future, but I could see the premium eroding a bit. Rents may marginally rise while property values come down a touch. But no matter what happens, if you wait for parity, you will wait forever.
The ny times ran an interesting bit on house price/rent ratios arguing that under 15 means buy for sure and over 20 means rent for sure. This house comes in at 22 using the above numbers....
ReplyDeleteI don't necessarily expect rental costs vs monthly ownership costs to reach parity, but when 1) it's cheaper to rent than buy a comparable place, and 2) overall prices are still declining (at least in the parts of the Westside I'm watching), it makes no sense to buy. When it's cheaper to rent than buy the only reason you would rationally buy is because of expected appreciation.
ReplyDeleteSo I'm waiting it out mostly until I feel 80% or so confident that prices have stopped falling. If that means I miss a few months or even a year of appreciation from when the bottom actually hits I'm fine w/ that. I'm a patient guy.
"The ny times ran an interesting bit on house price/rent ratios arguing that under 15 means buy for sure and over 20 means rent for sure. This house comes in at 22 using the above numbers...."
ReplyDeleteHow does that account for interest rates?