Posted on Monday, March 21, 2011
More Reasons to Buy Than Ever Before
• Affordability. $1.3 trillion lost means savings to buyers,
• Selection. Nicest new places. Example: 21.03% of the homes in Florida are vacant. (2nd worst in U.S.). But construction of new homes is also down (81.37% in Florida – 3rd worst in U.S.). Eventually will be absorbed.
• Mortgage rates still reasonable. Loan availability will tighten
• May be stimulus type programs still available: Example: Florida Housing Finance Corporation, 1st time buyers up to $7500 down payment assistance, Income restricted by County. Palm Beach up to $75,400 for family of four. Purchase price up to $466,125, Repayment deferred up to 30 years @ 0%
• Can’t time bottom. Worst is behind: Some areas already increases (second homes: ea Island, Aspen, Hamptons, Maui, Vineyard)
• Have to live somewhere, zero return on rental payments. Buying the right property for the right price with the right loan if you plan to stay is better. Rent selection decreasing, prices increasing.
Plus New One – Renting is Getting More Expensive
Supply and Demand: Foreclosed owners and people putting off buying means apartment vacancies at two year low. Driving rents up.
Multi-family first to recovery of CRE due to short lease terms and stable occupancy levels. Lots of money chasing few assets. Less experienced investors with need to deploy. Prices up from $28K unit to $40K in some places. Plan clearly is to raise rents. Not timing bottom – leverage averages.
Result: Both Sides of Rule of Thumb Rent v. Buy Formula Favor Buying
Rent to Own Ratio: Home price divided by annual cost to rent that home. Buy when ratio is below 15. Rent When above. Lean towards renting when between 15 and 20 unless find dream home and plan to stay.
Quarterly Cost to Rent v. Own (PITI) (Trulia). As of last release: cheaper to buy than in 72% of U.S. big cities. Led by Miami. Other Florida and sand state cities 14 to 15.Top 10 cities where cheaper to buy all in 4 biggest foreclosure states.
Deutsche Bank: Cost to rent is more than to buy for first time in over 20 years. 100.2% for 2010.
Only Reasons Not to Buy
Not Knowing Where Bottom Is
Foreclosures, fear of buying – prices heading down, tighter credit causing more to rent over buy.
Existing Sales have been up. But pending sales – indicator of future existing sales, down. Type of buyer: young, frugal, energy efficient – influences types of inventory being absorbed.
Also types of sales show troubling trend; Investors up, cash up, distressed up. All push prices down and indicate inventory that will be for rental or resale as opposed to long-term absorption. Large investors don’t always pay taxes and 41% still vacant years later.
Corelogic reflects 35% less sales than NAR – numbers in question.
RealtyTrac foreclosures down – but temporary.
Case Shiller says prices down. Will drop some more for certain type of homes and areas, but in some stable or rising.
Wild Cards Still: foreclosures, shadow inventory, employment, credit and impact they will have on home prices and sales.
More Than Numbers
Part Investment, Part Consumption. Example of other factors:
Plan to move or need to be able to (for job, etc). Flexibility.
Responsibilities of homeownership maintenance. (annual 1 to 2% of price)
Stability (kids, pets, etc), school district, ability to customize
Forced savings: average owner net worth v. renter (retirement, safety net)
Demographic shift: life ling renters taking advantage of good time to buy. Life long owners foreclosed or fearful and now renting. Renting used to be last resort. Perception changing – many people able to buy now want to rent.