Rent vs. Own

NEW -> Contingent Buyer Assistance Program
[quote author="WestparkRenter" date=1221099634]In 1987-1988 time frame, it was less than $700 per month for 1 BR aparment near Westpark, Veneto is the street.



But here is some frame of reference:

In 1984/1985, I could get a brand new SFR starter home in Northwood/Trabuco Canyon area for less than 4 times my salary, maybe 3.5 times my salary alone.</blockquote>


Be careful using metrics from one time period to another. You have to control for rates, tax laws, etc. 30 year fixed mortgages were 12% - 15% in 1984-1985. If rates today rose to 13% from 5.7%, prices would have to drop about 50% to achieve similar monthly payments. Therefore, the 4x salary in 1984 is equivalent to 8x salary today. Do the math, and you'll see prices today aren't out of whack with 1984. I have no clue if homes were overvalued in 1984.



Also, $700 in 1987 growing at inflation of 3.5% would equal roughly 1450 today. Search westpark, and you can get 1 bedrooms for 1450. So rents haven't changed much either.
 
[quote author="rtlguru" date=1221101181]

Be careful using metrics from one time period to another. You have to control for rates, tax laws, etc. 30 year fixed mortgages were 12% - 15% in 1984-1985. If rates today rose to 13% from 5.7%, prices would have to drop about 50% to achieve similar monthly payments. Therefore, the 4x salary in 1984 is equivalent to 8x salary today. Do the math, and you'll see prices today aren't out of whack with 1984. I have no clue if homes were overvalued in 1984.

</blockquote>
Hmm... so the price of a 4br home in 1988 is similar to that of one in 2008 when adjusted for mortgage rates, inflation and wages? I'm thinking this isn't right.

<blockquote>

Also, $700 in 1987 growing at inflation of 3.5% would equal roughly 1450 today. Search westpark, and you can get 1 bedrooms for 1450. So rents haven't changed much either.</blockquote>
This makes sense as by my calculations, rent has probably increased by 50% to 100%... but cost of ownership seems to have increased by 300% (just strictly based on pricing... not mortgage rate adjustment) in Irvine.
 
[quote author="rtlguru" date=1221101181][quote author="WestparkRenter" date=1221099634]In 1987-1988 time frame, it was less than $700 per month for 1 BR aparment near Westpark, Veneto is the street.



But here is some frame of reference:

In 1984/1985, I could get a brand new SFR starter home in Northwood/Trabuco Canyon area for less than 4 times my salary, maybe 3.5 times my salary alone.</blockquote>


Be careful using metrics from one time period to another. You have to control for rates, tax laws, etc. 30 year fixed mortgages were 12% - 15% in 1984-1985. If rates today rose to 13% from 5.7%, prices would have to drop about 50% to achieve similar monthly payments. Therefore, the 4x salary in 1984 is equivalent to 8x salary today. Do the math, and you'll see prices today aren't out of whack with 1984. I have no clue if homes were overvalued in 1984.



Also, $700 in 1987 growing at inflation of 3.5% would equal roughly 1450 today. Search westpark, and you can get 1 bedrooms for 1450. So rents haven't changed much either.</blockquote>


I rather buy a house in high interest rate situation because when interest rate drops you can refinance for lower payment. So what you are doing is only comparing payments, what about the size of the mortgage? Do you plan to move to Oregon or Arizonna when you retire?
 
[quote author="irvine_home_owner" date=1221102193][quote author="rtlguru" date=1221101181]

Be careful using metrics from one time period to another. You have to control for rates, tax laws, etc. 30 year fixed mortgages were 12% - 15% in 1984-1985. If rates today rose to 13% from 5.7%, prices would have to drop about 50% to achieve similar monthly payments. Therefore, the 4x salary in 1984 is equivalent to 8x salary today. Do the math, and you'll see prices today aren't out of whack with 1984. I have no clue if homes were overvalued in 1984.

</blockquote>
Hmm... so the price of a 4br home in 1988 is similar to that of one in 2008 when adjusted for mortgage rates, inflation and wages? I'm thinking this isn't right.</blockquote>


No, I'm saying the price/income ratio in 1984 is comparable to 2008 if we adjust for mortgage rates and only factor in monthly payments. Obviously, there are many other factors to consider, but i'm simply adjusting the simple comparison westpark made using price/income and normalizing it for rates. In other words, just because price to income ratio was 4x in 1984 and it is now 8-10x doesn't mean we should be at 4x right now.
 
This thread has got me thinking that I should rent out my current house and look for a bigger house to rent rather than buy.



The power of message boards rears its ugly head.
 
<a href="http://www.newsweek.com/id/163453">http://www.newsweek.com/id/163453</a>



The Trouble With Homeownership

It's good for the community but not the wisest investment.



By Robert Shiller | NEWSWEEK



<blockquote>But what's ironic, as any classical economist would tell you, is that homeownership is actually not a great idea from an investment standpoint. A better strategy would be to diversify as much as possible?put your money into stocks, bonds, many different geographies?and then use the income to rent whatever you like, which allows for greater flexibility and efficiencies. The popular argument that renting is equivalent to throwing money down the drain is really fallacious, since the money you save can be invested to produce dividends. Instead of you tinkering with the plumbing and breaking something, a professional can do it. The lawn guy who has the right equipment can come and mow all the lawns faster and better than individuals would, and so on.</blockquote>
 
You must log in or register to reply here.
Back
Top