Buy vs Rent?

Wednesday, April 11, 2007 | 06:59 AM

Now that the Spring home buying season is in full swing, I spoke with our real estate agent to see how the "surge" was going. She's one of the good ones -- charming, helpful, knowledgable, honest, a pleasure to work with.


That was her initial response. "Depressing" was the second word out of her mouth.

What seems to be the problem? I asked her. "Sellers haven't gotten realistic yet. They are still pricing things as if it were 2005."

Granted, this is one agent, in NY, on the toney Gold Coast of Long Island's North shore. She mostly sells houses from half a million up to quite a few million, but I would guess her sweet spot is from $500k to $800k. But her comments echo what we have heard from Home Builder CEOs recently, and I daresay they are probably typical across many areas.

That conversation put a few of today's more interesting columns into perspective today. The first comes from the NYT's David Leonhardt, with the inflammatory title A Word of Advice During a Housing Slump: Rent:

"With the spring moving season under way, The New York Times has done an analysis of buying vs. renting in every major metropolitan area. The analysis includes data on housing costs and looks at different possibilities for the path of home prices in coming years.

It found that even though rents have recently jumped, the costs that come with buying a home — mortgage payments, property taxes, fees to real estate agents — remain a lot higher than the costs of renting. So buyers in many places are basically betting that home prices will rise smartly in the near future.

Over the next five years, which is about the average amount of time recent buyers have remained in their homes, prices in the Los Angeles area would have to rise more than 5 percent a year for a typical buyer there to do better than a renter. The same is true in Phoenix, Las Vegas, the New York region, Northern California and South Florida. In the Boston and Washington areas, the break-even point is about 4 percent."

The interactive graphic belies the title, however: Its pretty clear that except under the worst circumstances (falling rents, high mortage rates, very high prices) and a short time line, its a better long term deal to own than rent:

click for interactive feature



Elsewhere, the coverage of the ongoing Housing mess continues. This WSJ column (Digging Out of Delinquency) noted the increasing delinquency rate of mortgage holders. The accompanying chart show former hot areas such as California, Florida and Las Vegas leading the way delinquency rate increases.

click for sortable map


Lastly, we come to this Washington Post article: Housing Boom Tied To Sham Mortgages. It discusses, in brutal detail, how a crooked mortgage broker was able to game the enire system to scam a $100 million dollars worth of bogus loans. He was able to accomplish this due to the lax lending standards, (especially the no-doc "liar loans"), scam appraisals, a lack of regulatory oversight, hungry real estate agents, and naive buyers. He drove up the prices in entire neighborhoods.

After the scam unraveled, prices collapsed as 100s of homes fell into foreclosure. Its an ugly ugly tale.


As you can see, it is no longer Positivity Day here at The Big Picture. Sorry, Larry!


UPDATE: April 11, 2007 10:01am

The Times uses as an example a home in Hollywood Florida, that with a few changes in variables, makes owning much less desirable:


click for larger graphic


A Word of Advice During a Housing Slump: Rent
NYT, April 11, 2007

Digging Out of Delinquency
WSJ, April 11, 2007; Page D1

Housing Boom Tied To Sham Mortgages
Lax Lending Aided Real Estate Fraud
David Cho
Washington Post, Tuesday, April 10, 2007; Page A01

Wednesday, April 11, 2007 | 06:59 AM | Permalink | Comments (78) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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Unfortunately, none of this matters. The bears will keep getting squeezed, and the market will keep rallying. (Look at China this morning. Ridiculous. And no end in sight.) Between the US government lying about economic figures and running the money presses at Warp 10, there's absolutely no chance we see any sort of market decline unless there's some sort of catastrophe. Don't count on earnings season, either: the companies have figured out that they can stuff their pipelines silly, hide their losses with creative accounting and that the analysts won't question it, nor will the buyers balk at it. I mean, WTF is "before charges"?! If we hadn't had to write so and so off, we'd have made this much. If the dog hadn't stopped to crap he'd have caught the rabbit, too...

Ohh, eventually the game has to end; eventually the government and the corporate types will run out of lies to tell. Eventually the CNBC crowd won't be able to spin this bullish/drink it pretty. The resultant decline will be horrific. But until then, fundamentals be damned; buy 'em to the sky, and never question why. The only way to make money right now is to be a Booyah Bozo Buyer.

Posted by: John | Apr 11, 2007 7:51:31 AM

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