jeffyscott wrote: ↑Mon Oct 18, 2021 9:34 am
It looks like the mobile homes are at prices that I might see in my area, but here it would be an actual house (and also be on a 14 to 1/2 acre and have a basement).
That one give a rent estimate of about $4000, so the buy/rent ratio is about 35
I don't really like either option and have no idea what I would do if I lived in a market like that, I want to say rent, but that may be just because it's difficult get past the bias from a lifetime of living in the midwest where house prices are "normal" and increase at about the inflation rate. Around here, we're talking about how we can not believe that someone paid $320K for a 1200 sf ranch and the alternative might be $2000ish to rent something similar. So if you could buy at 1/6 of your prices, but rent would be still be 1/2 of what it is, what would make sense then?
I guess what the buyers are looking at is that, using your example of the $1.7-1.8 million home, it sold for about 1/2 that price 6 years ago, so they probably figure that in a few years it'll be over $3 million.
Good points. Personally, I don't make that assumption. If anything, I think the opposite.
I think the key factor for a renter is what percentage of your gross income will your housing costs be, and whether you can commit to save/invest whatever you save over purchasing. If this works out for you, you can make the decision to rent knowing you haven't made a bad choice.
Renting [+ any utilities] allows one to define housing costs as a straight percent of gross income for the length of your lease.
(
US Average Housing Costs are 32.6% of gross income, SF Bay Area average is 36.6%.)
My position would be for
HCOL renters in the current market that if you can get your total housing costs under 28% or 25% or even lower (For example...$3500 rent x 12 mos. = $42,000, and $42,000/$250,000 = 17%) of gross income via renting, then
by all means rent if you are so inclined. The houses (and I've toured plenty of them in our area, including walking the neighborhoods) are almost universally not worth the inflated asking price and, at least for me, it's a fools game to chase those prices, and the alternative, condo and townhome developments, have inherently more costs (HOA/upkeep fees) and have more price volatility than single family homes.
Some folks, of course, see $42,000 in rent for a year and gasp. '
You're throwing your money away!' But really, you're not. Esp. in the first ten years when a typical mortgage is paying out predominantly interest. And especially if you are saving and investing the difference between what you pay in rent and 36% of your gross income. What you are doing is paying market rate for rental housing at a price you can afford and investing the balance. (In the example of the $250,000 per year income, that might be
$48,000 in investments per year, or $4,000 per month.)
And the other side of that equation is that while someone making $250,000 a year
can easily afford $42,000 annually in rent, by most common sense standards they really should not be trying purchase a $1,750,000 home at 7x income with a 30 year commitment to $95,000 in annual mortgage payments that don't account for budgeting for repairs, upkeep and unanticipated expenses, not to mention calamities or job loss.