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Rent vs. Buy Visualization of Top 50 Cities

trulia.movity.com

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Re: Rent vs. Buy Visualization of Top 50 Cities

#71

Post by tomsaffell »

klochner wrote: post #37
tomsaffell wrote: post #22

Earlier quoted context omitted.

I agree. I just ran the numbers for SF. Based on mid-point of Trulia's buying and renting price ranges ($750K to buy, $3.25K monthly rent), I get the following annual real costs: buying: ~$24K renting: ~$36K That is based on the following assumptions: 40% margin tax rate, principal repayment is not a real cost (it's a saving account...) 15% down payment (renters invest the equivalent amount in a 3% annual return fund…

> 30 year ammortization of loan with a 4% rate (available now on 5 year ARMs) You realize that's how a ton of people lost their homes, right?

That's only a part truth. My example specifically deals with San Francisco (because Trulia showed it to be a 'rent not buy' city). In SF there have not been anything like the level of defaults seen elsewhere in the US. Elsewhere in the US, rate adjustments on ARMs were just one part of the problem. The other bigs ones behind the recent crisis were: over inflated house prices (in SF, prices were only down ~15% on peak); people qualifying for loans that they could not afford with-or-without rate changes (by lying about their income); people being unable to re-mortgage now because they have now equity/down-payment (tightening lending criteria as a result of previous over-loose criteria)

Summary: what you say is a true statement about part of the reason the US housing economy blew-up. But it's not very relevant to my example about buying a $750K house in SF with 15% down and a mortgage that you can actually afford (the only type you can get today - i.e. $100K in income)

Re: Rent vs. Buy Visualization of Top 50 Cities

#72

Post by jacques_chester »

robryan wrote: post #70
jacques_chester wrote: post #61

Earlier quoted context omitted.

> Frankly I think any system that encourages people to create homes for others to rent as doing a public good. All good and well, but land releases have not kept up with demand. A supply of cheap money from the US, the mining boom and negative gearing have lead to massive increases in housing prices in the past 10 years. It's not sustainable, IMO. We in Australia brag about sailing through the GFC, but if inflation b…

I don't really understand land releases, surely this could happen faster, it feels like its geared towards maximum profit to only release in small chunks when there are large areas they will eventually be subdividing. Somewhere like Melbourne though, I think things need to become a little less inner city focused. As in new suburbs are popping up but not a lot of employment is close to them meaning that transportation…

It suits both government and developer to do small releases. The developer can charge a premium and the government maximises stamp duty.

Re: Rent vs. Buy Visualization of Top 50 Cities

#73

Post by tomsaffell »

patio11 wrote: post #50
tomsaffell wrote: post #22

Earlier quoted context omitted.

I agree. I just ran the numbers for SF. Based on mid-point of Trulia's buying and renting price ranges ($750K to buy, $3.25K monthly rent), I get the following annual real costs: buying: ~$24K renting: ~$36K That is based on the following assumptions: 40% margin tax rate, principal repayment is not a real cost (it's a saving account...) 15% down payment (renters invest the equivalent amount in a 3% annual return fund…

Principal repayment is a savings account if and only if real estate never declines in value.

True. But on the other hand, I'm not factoring any upside relating to increase in value. See my edit in parent about risk.

Re: Rent vs. Buy Visualization of Top 50 Cities

#74

Post by robryan »

louislouis wrote: post #65
yummyfajitas wrote: post #26

Earlier quoted context omitted.

A third risk (technically subsumed by 1): your local economy tanks, driving down both your income and the value of your house. Buying a home to live in is a form of un-diversification.

A fourth risk: Fed raises interest rates then your monthly mortgage payments cost more than renting and hopefully not more than you can afford.

All of this you have essentially no control over and are exposed to for possibly a 30 year period. At least with renting you can look for a better deal after a 12 month contract ends. I'd imagine a lot of people were lured to buy by people telling them house prices would never fall and lost big.

Re: Rent vs. Buy Visualization of Top 50 Cities

#76

Post by tomsaffell »

mrtron wrote: post #32
tomsaffell wrote: post #22

Earlier quoted context omitted.

I agree. I just ran the numbers for SF. Based on mid-point of Trulia's buying and renting price ranges ($750K to buy, $3.25K monthly rent), I get the following annual real costs: buying: ~$24K renting: ~$36K That is based on the following assumptions: 40% margin tax rate, principal repayment is not a real cost (it's a saving account...) 15% down payment (renters invest the equivalent amount in a 3% annual return fund…

available now on 5 year ARMs -- you can always go back to renting in 5 years, and if rates soar then that means the economy has recovered, which means your house is worth more.. Rates soaring could also push the real estate prices drastically down.

The 'govt' will only raise rates substantially when they feel the economy requires a cooling effect (taking away the punch bowl just as the party gets started, and all..), by which time house prices will have gone up. The circumstance in which we could have high rates and falling property prices is the crash after the next rally (if market cools too quickly), which is a ways off.

Re: Rent vs. Buy Visualization of Top 50 Cities

#77

Post by cletus »

jacques_chester wrote: post #69
cletus wrote: post #66

Earlier quoted context omitted.

> All good and well, but land releases have not kept up with demand This point I've heard too often and it's one I vehemently disagree with. Australians need to get over this quarter acre with a 250sqm house nonsense. What's more the government should stop subsidizing it to the degree that they are. It's not simply a question of land but all the infrastructure that goes along with it: water, power, roads, schools, et…

I've heard your argument too. It's been the guiding thought behind slow land release -- that it will lead to higher density. That and the fact that it expands stamp duty receipts. But that overlooks the fact that overly complex zoning laws, NIMBYist resistance from residents and the odd spot of outright corruption has basically prevented density from increasing. Density has its costs too. It's cheaper to extend a sew…

FWIW http://www.wired.com/science/planetearth/magazine/16-06/ff_h...

As far as stamp duty goes, IMHO that system needs to be abolished. Property taxes should be applied smoothly rather than transactionally. For one thing, stamp duty reduces the flexibility of the labour market.

Consider: someone owns a house in Sydney worth $1 million. They're offered a job in Perth for, say, $150,000. Now to sell up and buy a new house in Perth they'd need to pay $50,000+ in stamp duty before you even get into agents commissions and whatnot. Why should someone take such a huge initial hit? Unless they didn't have a job where they are or the new job was substantially better, they're best off not moving.

Re: Rent vs. Buy Visualization of Top 50 Cities

#78

Post by snagage »

cletus wrote: post #47
keyle wrote: post #38

Earlier quoted context omitted.

Hey mate. Interesting perspective. without knowing your financial situation, I'd suggest to keep working in the U.S. and invest in housing back in Australia. Both are great prospects but you might be able to buy 2 houses near the beach in Australia (say Perth / Adelaide) for the price of one in NYC. In a way, it gives you diversification that NYC doesn't. Also buying walking distance from the beach gives you that sec…

> I'd suggest to keep working in the U.S. and invest in housing back in Australia. As it happens I do own a house in Australia that is rented out but when you're paid in one currency and your costs are in another you open yourself up to exchange rate risk. So I'm way of overweighting myself in AUD liabilities. It's not a currency I'd be betting against in the next 10 years. Likewise, the USD looks like it'll only get…

> Frankly I think any system that encourages people to create homes for others to rent as doing a public good.

I don't see the tax breaks as a good thing as it skews market forces and inflate property prices. They also throw up a moral dilemma: Why should property investors get tax breaks (offset interest payments against personal tax) and not home owners.

What you start to see some single young professionals in Australia doing is buying an investment property to lease out and then renting another property to live in themselves. This is to take advantage of the government-funded tax breaks. So the flow of money goes a little something like: government tax revenue -> property prices. I can't see this helping the public good at all.

Re: Rent vs. Buy Visualization of Top 50 Cities

#79

Post by tocomment »

callmeed wrote: post #55

I was talking to a real estate broker from phoenix on my flight last weekend. He said you can buy distressed homes for < $100k and condos/townhomes for < $50k. He's got clients buying properties, renting them in less than a month, and having instant positive cash flow.

Any tips on where to find them? When I look through the mls I see very few forclosures.
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