IHB: Hedonic Wednesdays - Irvine condos cost to own vs. rent

[irvinehomeowner]

I'm glad the IHB teamed up with Global Decision to do data-centric posts, today's post actually has data indicating the cost of owning a condo in Irvine is on par with or lower than renting one:
http://www.irvinehousingblog.com/bl...s-rent-versus-own-by-global-decision-and-ihb/

The telltale chart pr0n:

Notice that although the cost of own-price index is higher than rent-price, the 30-FRM rate brings the monthly cost lower so it's actually below the rent-price index.

Does that mean it's time to buy? Not necessarily, as Jaysen puts it, there are two conclusions:

1.    The ratio of home sales prices to rents remains elevated and will continue to deflate until pre-bubble levels are restored.  The values of homes will continue to decline, unless rents increase significantly.  Waiting to purchase a home is a wise decision.

2.    The ratio of monthly payments to rents is actually now below 2000-Q1 levels.  The impact of low interest rates is now so significant that buyers will be drawn into the market.  Buying a low payment will trump worries about declines in the value of the underlying asset.  Purchasing a home now is a wise decision.

Or in other words... net zero.

 

[Nous]

So, the conclusion is that if you buy or if you wait you are making a good decision?  Sounds wrong somehow...

 

[usctrojancpa]

I'm glad the IHB teamed up with Global Decision to do data-centric posts, today's post actually has data indicating the cost of owning a condo in Irvine is on par with or lower than renting one:
http://www.irvinehousingblog.com/bl...s-rent-versus-own-by-global-decision-and-ihb/

The telltale chart pr0n:

Notice that although the cost of own-price index is higher than rent-price, the 30-FRM rate brings the monthly cost lower so it's actually below the rent-price index.

Does that mean it's time to buy? Not necessarily, as Jaysen puts it, there are two conclusions:

1.    The ratio of home sales prices to rents remains elevated and will continue to deflate until pre-bubble levels are restored.  The values of homes will continue to decline, unless rents increase significantly.  Waiting to purchase a home is a wise decision.

2.    The ratio of monthly payments to rents is actually now below 2000-Q1 levels.  The impact of low interest rates is now so significant that buyers will be drawn into the market.  Buying a low payment will trump worries about declines in the value of the underlying asset.  Purchasing a home now is a wise decision.

Or in other words... net zero.

They need to update their chart porn because the 30-year fixed is on the verge of touching 4%. 

 

[so_scared]

another interesting factor they didn't include was the changes in marginal tax rate. As that changes, the net "cost" of ownership would change.

If you recall in the 80's, every doctor was buying commercial real estate because the depreciation and interest were deductible from their regular income. When that changed, commercial RE took a major hit for a long while as the economics of ownership had changed.

Jayson's statement that all houses should be thought of a series of cash flows would also significantly be impacted by the discount rate applied to that stream of cash flows. Since most discount rates are usually some calculation of risk free rate + adjustments for risk, when interest rates go down, the value of the same rental property producing the same rental income can go up significantly even if it produces no more absolute income.

 

[panda]

LOL. That picture is a famous Korean actress Kim hee sun and her new family. I guess Larry and Shevy is trying target the right Irvine audience. Any Korean in Irvine who sees this ad will find it funny.