don't you have to worry about squatters, too?

Do you really need a second property to get robbed?

I kid because I love.

http://www.nytimes.com/2011/05/11/busin ... .html?_r=1

Rent or Buy, a Matter of Lifestyle
By DAVID LEONHARDT
WASHINGTON

Real estate agents across the country are aggressively making the case that now is a good time to buy a house. Mortgage rates are near record lows and will probably rise in coming years. Home prices may not be done falling, but they probably don’t have much further to go in most places either. Rents, on the other hand, seem set to increase, thanks to low vacancy rates.

“Renters beware,” warned a newsletter that I recently received from a real estate agents’ group.

Individually, each of these points is unobjectionable. But it’s important to remember the source. Real estate agents, like mortgage brokers and home builders, have a big financial stake in persuading people to buy homes. That’s why many agents are always pushing home buying, whatever the rationale of the moment happens to be.

The truth is that you can make just as strong a case in many places for renting. For starters, neither mortgage rates nor rents are likely to rise rapidly. Even more important, house prices, relative to rents, remain higher than their long-term average, especially in much of California, the Pacific Northwest and the New York region. In these places, among others, renting is often cheaper than buying — still.

I’ve made a near-annual habit in this column of looking at the rent-versus-buy decision, and The Times has built an online calculator so that readers can make their own comparisons. The idea isn’t only to help potential buyers but also to figure out whether and where house prices are overvalued. That question is of obvious importance to homeowners and to the American economy.

As this year’s spring buying season nears its peak, the relative merits of renting and buying are closer than they have been since the housing bubble began inflating almost a decade ago. So the best single piece of advice for most people is to make a decision based mainly on their stage of life, rather than on any complex financial calculations.

If you think you are ready to settle in one place for at least five years, if not more, buying often makes a lot of sense. That’s why I bought my first house, in the Washington area, a few years ago, despite thinking local prices remained high.

But if the chances are good that you will move again in the next few years, renting is usually the better bet. The various closing costs, including real estate agents’ fees, are just too high. Owning a house also makes it much harder to move when you want to because selling a house is complicated.

Within this basic framework, the numbers — specifically, something called rent ratios — are the next place to turn. A rent ratio is the sale price of a house divided by the annual cost of renting an equivalent house. When the ratio is below 15, most people should lean toward buying.

To see why, look at the Atlanta area, where the average ratio is now about 13. Combined with today’s low interest rates, that ratio means that the typical monthly mortgage payment is several hundred dollars lower than the rent on an equivalent house. Over time, this difference helps make up for the other costs of owning, like closing costs and borrowing costs. And, yes, a mortgage costs money, despite the tax deduction.

Only if home prices in Atlanta fall further and don’t recover for years would most buyers today have reason for regret. The other areas where the average ratio is below 15, according to Moody’s Analytics, include Los Angeles, Miami, Minneapolis, St. Louis, Las Vegas, Cleveland, Detroit, Phoenix, Pittsburgh and Tampa, Fla.

On the other end of the spectrum are metropolitan areas where prices still look bubbly. In San Diego, the ratio was 22 at the end of last year (and most ratios have fallen only slightly since then). In northern and central New Jersey, it was 25, and it was 29 in Manhattan. In Silicon Valley and the nearby East Bay in California, the ratio was above 30.

All these numbers are well down from their peaks from about five years ago. But they’re still higher than they were in the decades before the housing bubble. They are also high enough to make the monthly costs of owning steeper than the costs of renting.

As a rule of thumb, a ratio above roughly 20 means that a monthly mortgage bill is higher than rent for a similar house. In Silicon Valley, the after-tax mortgage payment on a typical house might be $3,500 — while the rent on the same house would be only about $2,500.

The arithmetic of owning then gets mighty tough. On top of closing costs and mortgage costs, owners are also falling further behind renters each month. To make up that ground, house prices would have to rise significantly over the next few years. Does that sound like a good bet?

When you look at the numbers this way, it’s easy to conclude that the excesses of the housing bubble are mostly gone in much of the country. Yet you also start wondering whether New York, San Francisco, Seattle and a few other places still have a housing crash in their future.

I realize there are some important caveats here. Affluent people tend to want to own their houses, even when the dollars don’t make sense, and the Northeast and West Coast are home to much more wealth than a few decades ago. That could cause future rent ratios to be higher than those in the 1990s or even the 1980s, a better decade for real estate. Meanwhile, the coming rise in rents — maybe 4 or 5 percent a year, for the next few years — will reduce rent ratios even if prices don’t fall.

Yet the fact remains that a lot of New Yorkers and Californians, among others, are paying a hefty premium for the privilege of owning. Eventually, some of them may decide it’s not worth it, much as homebuyers in Las Vegas, Phoenix and Florida ultimately decided that prices were too high. If that happens, prices in New York and California will fall, too.

A crash strikes me as unlikely. But any potential homebuyers should know that real estate exuberance — irrational exuberance, it seems — has survived in at least a few places.

E-mail: leonhardt@nytimes.com; twitter.com/DLeonhardt

http://www.oftwominds.com/blogmay11/6-t ... t5-11.html


Buy now or be priced out forever!

Great article, but I still wonder if now isn't the best time to buy rental properties. It's not like the economy is suddenly going to pick up and everyone will want to buy houses again...

I think that's actually quite right. Prices still have a ways to fall (though whether they'll be allowed to is another story). An income property is a totally different animal.

There are exceptions to every rule. The right property at the right price in the right location at the right time is certainly worth purchasing.

Rents are way down too. Its a renters market so there are a few different things going on there as well. Renters have all the bargaining power so you will have to drop rents significantly just to tie them into a long term lease. If you have the cash flow/equity etc.... to ride it out as well...then yes its a safer bet then owning a residence. However, rents are really freeking low and it will take some balls to be able to tie someone into a long term lease. Then you get into the situation where fixtures and equipment and the renters who own it/may take it with them if you dont sign them into a lease (doctors, dentists, etc...) Thus having to get the space rentable.

Retail sales are down all over the map as well.

Its basically just ugly. buy a tent and head out to the woods, friends.

Dont forgot your ipad though....will need updates from beyond....

Answer my question about the Myrcenary Double IPA in food & debate, fatso.

link me up

dont call me fat.

In keeping with my longstanding policy of being a total hypocrite, I am now house shopping with my wife.

Oh bart d.

Another terrible Case-Shiller number today. ~30 months of zero-interest rate policy, two incarnations of Quantitative Easing, and hundreds of billions in various housing-related subsidies, and the numbers are still rolling over.

Be careful bart.

Man alive. The housing market is nowhere near bottom, folks.

My property tax assessment came out at 50k more than I bought my house for.