How the Rent vs Buy Analysis Is Bringing Families Back in Real Estate Market
When housing prices were going through the roof, purchasing a home became something that honest middle class and lower middle class families could not afford. Unless you were willing to fudge the truth, a couple that were teachers were priced out of the market in some sections of the country.
This reminds me of the 150 to 200 rule we discussed way back in 2005. The rule is that if a home was selling for 200 times the rent of the property, it was a bad investment to buy. So if you could rent a home for 1,000 a month that was smarter than buying it for $200,000. If the home price was $140,000 it made more sense to buy than rent.
With the housing price drop and foreclosures occurring, housing prices are dropping to the point that prudent families can realistically look to buy a home. And those living is starter homes can think about upgrading.
All of this is where the bottom firms up, when the decision to buy makes more sense than the decision to rent.
Housing experts said buyers of such properties will play a key role in any kind of turnaround, helping pare the glut of vacant homes sitting on banks’ books even as the Obama administration forges ahead with its plan to help homeowners in peril of losing their properties.
“It is very important that those homes get recycled back into some kind of productive use,” said Eric S. Belsky, executive director of Harvard University’s Joint Center for Housing Studies. “To the extent to which the homes are purchased by people intending to live in them, or improve them and rent them out, it can be a very important part of bringing the market back into equilibrium.” washingtonpost.com.
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Comment by Ditech Home Loans on 23 February 2009:
When potential mortgage payments become closer to the cost of renting a similar home, there is naturally more incentive to own a home, rather than rent.
Comment by Paul on 23 February 2009:
Interesting concept — The 150 / 200 rule! It really makes sense when you think of it.
Comment by Larry Tutino on 23 February 2009:
I don’t know who started the 150..200 rule, but it definately still works! After selling enough land for 800 new homes in Pierce County, I was becoming worried that once again the “average” wage earner could not really afford a basic homw. I was also surprised at how many types of loans were available. It was looking as if anyone could qualify? As a former award winning real estate agent for Century 21, I could see that many families really couldn’t afford what they were buying! I am thankful that I sold LAND only. Now I don’t have to watch a bunch of my clients lose their homes to forclosure.
Larry of Mt Rainier Properties LLC
Comment by Panama Real Estate on 23 February 2009:
Renting property is never as good as owning your own home. There are still good markets for rentals. The Panama rental market is still showing strong returns.
Comment by Woodstock real estate on 24 February 2009:
The tax deduction incentives are huge for owning a home. That is a point I always stress to first time home buyers in the Woodstock area. Rentals do have great points though. For people that need a place to live for the short term, it does’t get any better.
Comment by Richmond REO Deals on 24 February 2009:
With a lot of places, the foreclosure market provides houses that you could buy and fix up all for under $100K. Especially if you’re a first time home buyer, it seems like it’s worth it to try to get a place of your own as opposed to renting.
Comment by Jonas Kruckeberg on 24 February 2009:
Depending on where you are in the country, your title is absolutely correct. Not only is this market bringing out the renters and turning them into first time home buyers, this market is truly bringing families together to help purchase homes. I mean this in a literal since, dads, moms, brothers, sisters are helping their loved ones by co-signing on loans so they can qualify for a home loan. It makes perfect sense to do it, because, again, depending on your area owning a home with a mortgage is the same if not cheaper than renting. So some of these FTHB need a little helping hand to push them over the top.
Pingback by Real Estate Roundup - Week 9 on 2 March 2009:
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Comment by Rick on 2 March 2009:
Your analysis doesn’t state what makes sense. It only states what is happening.
I encourage you to watch this…
http://mortgages.whylose.com/irish-mortgages/renting-vs-buying-a-home/
Comment by Ernie on 2 April 2009:
Rick: your site is not working??
Comment by Luke Shiller on 26 July 2009:
This analysis makes no sense. I would say anything over 50 times you should rent. At 150 times your talking around 30 years or so to pay off vs rent.