One of the five REOs assigned to us the first week of February has made it to the open market:
It had sold for $490,000 in September, 2005, and was financed 100%. Eight offers in so far, looks like it will sell close to $300,000. Hope the appraiser agrees!
If this goes for $280,000 (to say nothing of a realtor commission)
Then subtract 20% down ($56,000)
And a 5% flat loan gets you a payment of $1202.48
With tax and insurance you are looking at about $1500 a month.
Who thinks this thing will rent for $1500?
What happens when rates go to just 7%?
Well the same buying power means your house is only worth about $240,000. If rates go to 9% then it’s worth $180,000 (or over 30% down).
Who in their right mind is willing to pay more than rent after 20% down in a world where rates can only go up?
When I was young and the market was normal, back then it was MORE expensive each month to rent. The reason you’d pay MORE each month to rent were many. Most didn’t have the down payment. Most didn’t have the credit. You weren’t locked in on a loan. You didn’t have to pay maintenance such as install a new roof, buy the new refrigerator, etc. You could get up and move whenever you wanted. Why in the world would people think rent should be lower than a house payment? You get no flexibility and have to cover the cost of all repairs…your monthly nut should be significantly below rent.
That house is worth $200,000 MAX!
But Joe it’s Oceanside! oh wait…
Your logic is too simplified, Joe. Plug in the numbers here;
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html
and see what it comes up with.
No Bubble.
I plugged in the numbers from Joe above, and the computer spit out that it’s never better to buy in 30 years than to rent.
*sigh*
Some people never learn, I guess.
Chuck Ponzi
PS. There’s still a bubble here.
For $56k, on a monthly basis, a monkey can earn more money conservatively in the stock market than what one could potentially get for this particular house in net income (negative after factoring in other costs).
Joe has a very good point. I sold my Montreal condo in 2007 partly because it was becoming more expensive to own the place than to rent it, what with the condo fees and taxes going up all the time (the mortgage rate remained pretty much the same at about 5.65%, but the return in capital was rather pathetic due to the low cash payment). There was even a huge repair bill coming up for the scheduled resurfacing of the roof which didn’t interest me one bit.
Despite all of this, and despite full disclosure of all of the building’s scheduled repairs, I still managed to find a buyer for my unit located in “Le Plateau” district in a single weekend without the help of a realtor or advertising! Bought for $125 CAD in 1999, sold for $275K CAD in 2007. The bubble hadn’t burst yet, but it was damn close!
What exactly is the state of rentals in North San Diego? What’s the proportion between owners and renters in the area? And what would be the average price?
Did everybody see Jim run that stop sign as he drove away? He turned right without stopping at it.
Naughty, naughty.
You all assume the buyer is an investor. But if it’s owner-occupied, then rising rates would not really make a difference, and buying the place would be roughly equal to renting. Maybe even less, depending on how the tax thing works out for those folks. I think most people are quite happy with having mortgage equal rent. I know it used to be cheaper to buy, for various reasons. But this has been so long ago, I think people have forgotten it’s possible.
By the way, if anyone doubts the market is in serious spring-fling mode: a house just around the corner from me on Brookhaven (Vista) just sold in a flasht, despite the fact there’s a construction site right behind the back fence. And what do they get to look at once the construction is over? A HOTEL! Now who in their right mind would buy that thing? But somebody did… (Maybe it was really, really cheap)
Jim- can you let us know if this one is an investor or intends to occupy? My guess is owner-occupied.
It’s also probably time for appraisers to change their thinking.
And, anyone else following housingtracker? http://www.housingtracker.net/asking-prices/san-diego-california Besides plummeting inventory look at the spike for asking prices in the upper end. There is a frightening disconnect going on here.
Ten offers are in, nine from owner-occupiers.
It looks like it’ll be 15% to 18% over list by the time we get it done today.
Wow. Listed Thursday, in escrow Tuesday.
Look for more owner-occupied purchases to start happening in the $300-$450K range. And, subsequently the Flippers will reappear. Bad news for the indignant renter but good news for homeowners is that these Flippers will start pushing up the middle tier of prices. Feels like 2002 again.
There are places right now where rents are significantly more than the cost of owning. Riverside and all of the Inland Empire, for one.
I am buying in Oceanside right now. I’m at the low end (upper $200s) for non-fixers. The cost of owning is comparable to rent, which is one reason I feel somewhat confident in the purchase.
P.S. I posted a message last night on this thread and it looks like it was deleted. I wonder if I said something wrong?
osidebuyer,
I’m fine with people learning here and using it as they see fit. Bubbleinfo.com is offered without obligation.
But don’t come back and rub my nose in it.
tsgarcia, that’s what they call a “California stop”.
“Stoptional”
And, subsequently the Flippers will reappear. Bad news for the indignant renter but good news for homeowners is that these Flippers will start pushing up the middle tier of prices. Feels like 2002 again.
Mozart | June 2nd, 2009 at 10:03 am
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The flippers have been back for a while, now. BTW, flippers don’t raise the prices in a neighborhood unless someone is willing to buy their flip for more than they paid. They are indicative of future supply, though (in rentals, for the “speculative “landlords” and “for sale” inventory for the flippers).
Even though some first-time buyers are able to get in now, there are far too many “investors” out there to call this a bottom, IMHO.
One of the red flags during the bubble was the unusually high level of speculative buying.
Chuck, what numbers are you using? Even if the rent is $1200, I still get buying is better after 24 years.