Subprime - the other side
I am always amazed at how irrationality can grow to such a large scale.
First you have the housing bubble, and valuations go to a point that things don't make sense.
At that point, it cost about half to rent a place than to buy it and pay off a mortgage. Note that this is the one truly rational yardstick to valuing a house in a stable market. It means that, including principal, interest, taxes and insurance (PITI), your house payment should be roughly similar to your rental of the same house.
Our old house, for example, was worth $650K at the height of the market, which with an assumed 20% down, and a 30-year fixed loan at 7% would have cost about $4,500/month PITI to own. Of course, ARM loans made that monthly cost a lot lower, which made it sensible to buy it anyway, at least in the short term, especially because they were so easy to get (hence the eventual meltdown). Renting the place would have cost $2,000 - $2,300 a month or so, or about half.
We got stuck with it as part of the meltdown, so we're renting it out instead. Here is where it gets crazy on the flip side. Right now, the house is valued at a bit over $450,000 according to a recent CMA. Assuming the same loan terms, it would cost roughly $2,800 a month PITI to buy and own (realistically it would be closer to $2,600 because the rate would be closer to 6.3%). Yet we are renting it out for $3,300 a month, and it could go for as high as $3,500.
You know, if this isn't a strong buy signal, I don't know what is. And yet there are still no buyers (we'd still like to sell it, renters and all). That, folks, makes just as little sense as when it was worth $650K at the top of the market.
I'll tell you this though; somebody's gonna be making a mint buying houses right now. Fundamentally speaking, considering the same exact yardstick that folks who were complaining about froth loved to use (the rent-to-buy ratio), houses are deeply undervalued. I wish I had a few hundred thousand lying around to pick up a half dozen properties tomorrow and rent them out, because they'd be making me money right off the bat. Heck, I wish I could buy my own house from me, because I could short sell it to myself and then really make a mint renting it out.
Nuts.
First you have the housing bubble, and valuations go to a point that things don't make sense.
At that point, it cost about half to rent a place than to buy it and pay off a mortgage. Note that this is the one truly rational yardstick to valuing a house in a stable market. It means that, including principal, interest, taxes and insurance (PITI), your house payment should be roughly similar to your rental of the same house.
Our old house, for example, was worth $650K at the height of the market, which with an assumed 20% down, and a 30-year fixed loan at 7% would have cost about $4,500/month PITI to own. Of course, ARM loans made that monthly cost a lot lower, which made it sensible to buy it anyway, at least in the short term, especially because they were so easy to get (hence the eventual meltdown). Renting the place would have cost $2,000 - $2,300 a month or so, or about half.
We got stuck with it as part of the meltdown, so we're renting it out instead. Here is where it gets crazy on the flip side. Right now, the house is valued at a bit over $450,000 according to a recent CMA. Assuming the same loan terms, it would cost roughly $2,800 a month PITI to buy and own (realistically it would be closer to $2,600 because the rate would be closer to 6.3%). Yet we are renting it out for $3,300 a month, and it could go for as high as $3,500.
You know, if this isn't a strong buy signal, I don't know what is. And yet there are still no buyers (we'd still like to sell it, renters and all). That, folks, makes just as little sense as when it was worth $650K at the top of the market.
I'll tell you this though; somebody's gonna be making a mint buying houses right now. Fundamentally speaking, considering the same exact yardstick that folks who were complaining about froth loved to use (the rent-to-buy ratio), houses are deeply undervalued. I wish I had a few hundred thousand lying around to pick up a half dozen properties tomorrow and rent them out, because they'd be making me money right off the bat. Heck, I wish I could buy my own house from me, because I could short sell it to myself and then really make a mint renting it out.
Nuts.
posted by Blinkered at 11:18 PM
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