Thursday, May 29, 2008

What's Your Ratio?

Mine is around 21-25. What am I talking about? Price rent ratios of course. The NYT has a great article discussing rent/buy decision factors.

The author suggests that historical ratios are between 10-14, so at 21-25 (and that doesn't include the Mello Roos or HOA), it looks like this area has a lot of room for improvement.


Sippn said...

Read it yesterday also. Looks like he didn't buy a $400K condo, but possibly a $700K home that would rent for $4000 per month. Interesting, isn't it how the numbers don't really compare - there isn't much of a $4000/month rental market here.

He also noted that CA is historically higher also - had been as high as 35 in No CA.

You now see ratios in Antelope and Elk Grove below 15 everyday - and down to 2-3 months inventory due to sales.

Husmanen said...

My current rental sold in 2006 and was rented out immediately. The rent ration was 23 in 2006 and is now about 19 depending on the comps. The rent has not increased since 2006.

At the current ratio of 19 I believe this house is still WAY over valued. Although houses that are priced below current comps are being sold rather quickly here in Folsom the price trend is still very negative. I see no signs of price stabilization today.

Also, at a rent ratio of 19 the owner has a negative cash flow of about $400 per month (calculated based on a 30 yr 80/20 loan, including PITI with tax deductions taken into account).

A ratio of 16 or less would perk my interest, other wise the economic fundamentals are just not there. Not to mention the macro economic trends lately.

alba said...

housing may be local, but macro-economics trumps any logical formula or ratio for justifying ownership...until you buy a house.

Deflationary Jane said...

Was 22.6 in 06; down to 19.4 now but I think I really understated repairs and maint because our LL are slugs. I also left appreciation out or it looked a lot worse.