Sunday, February 22, 2009

Renting vs Buying on The Westside, at This Point

With the real estate bubble finally popping on the Westside, there are some basic fundamentals worth noting. Prices are now reverting back to historical norms, and at this juncture, if you can wait, Renting makes more sense than Buying. I would like to give some good pointers on the Renting vs Buying equation, as mentioned by Patrick.net

1) A safe mortgage is no more than 3 times a buyers annual income
2) A landlords rule is the purchase price shouldn't be more than 15 times the annual rent
3) Coastal area annual rents are about 3% of a homes purchase price
4) Coastal area mortgage rates are about 6% of a homes purchase price (Jumbos)
5) Coastal area maintenance, taxes and insurance are about 3% of a homes purchase price

Buying a home is roughly 3 times more expensive on the Westside, than renting. Why would someone risk losing a down payment, get caught in a declining market, and lose their buying position, when prices ultimately correct back to historical norms?

2 comments:

Anonymous said...

People are buying now in the Westside for the same reason others were buying before the crash. They are acting on emotions instead of research and facts. All those desperate emotional commercial campaigns by the Real Estate sellers - they hear all the "you'll be SOORRRY!" message and panic-buy.
They're afraid it won't correct and they'll lose the bottom of the market.
We're waiting for the correction- and a bit peeved about Obama's rewarding the irresponsible high price buyers by bailing them out.
Let the market correct on its own and reward the prudent buyers!

JL said...

Renting has been a fantastic deal in Southern California since 2002 or so, and now more so than ever. Over all these years, I had been tempted to buy, but when I did the math, paying rent was cheaper than paying interest and taxes on an equivalent condo or house. Buying meant that I had to get 15-20% annual home value appreciation to make up for the higher expenses, and I just didn't believe that was sustainable.