Holden Lewis, who writes the great Mortgage Matters column for bankrate.com, follows up on an earlier article he wrote regarding the infamous "buy vs. rent" comparison that some (educated) people use to back up their argument that housing is "expensive".
The concept, again, is that housing is "expensive" or "not expensive" if it costs significantly more in mortgage payments than what you would be able to get in rent for that same home.
Rents in Boston, for example, have been supressed (depressed?) for the past four or five years, for example, as more and more people turn to buying instead, because of low interest rates and a recovering economy.
Holden quotes an email he received from a reader, saying that this comparison only tells half the story:
On Monday, writing about the housing bubble issue, I wrote that average rents in San Diego have outpaced average home prices. "According to the Office of Federal Housing Enterprise Oversight, values of middle-class houses in San Diego zoomed 24.3 percent in 2004," I wrote. "But according to the Census Bureau, average rents rose 5.4 percent. That’s an imbalance, one that has been happening for years. From 2000 through 2004, average rents in San Diego went up 32 percent, while average home values rose 92 percent."
I said it’s a sign of a bubble when prices outpace rents by a big margin. But Mark Maleitzke, who is buying a home in San Diego and is a bit closer to the situation than I am here in Florida, says the conditions aren’t quite so simple. The imbalance used to be the other way, he says. And don’t forget about taxes. Here’s his e-mail:
As a consumer that is in the process of buying a home in San Diego, I have been reading your Weblog on a fairly regular basis for the past few months. When I saw your comment on Monday about the San Diego rental vs. purchase situation, I thought I would send you a quick note to pose a scenario question to you.
Complete article: Renting vs. Buying in San Diego