Buying vs. Renting in Housing Slump

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, knowledgeable, honest, a pleasure to work with.

"Horrible."

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 Gold Coast of Long Island. 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 $1m. 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 interesting columns into perspective today. The first comes from the Times' 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: It's pretty clear that except under the worst circumstances (falling rents, high mortgage rates, very high prices) and a short time line, it's a better long term deal to own than rent:

click here 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 in delinquency rate increases.

click here for sortable map

Last, we come to this Washington Post article: Housing Boom Tied To Sham Mortgages. It discusses, in painful detail, how a crooked mortgage broker was able to game the system of lax lending standards (especially the no doc "liar loans"), scam appraisals, a lack of regulatory oversight, hungry real estate agents, and naive buyers to drive up the prices in entire neighborhoods.

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

~~~

As you can see, it is no longer Positivity Day here at The Big Picture (sorry Larry!)

Sources:
A Word of Advice During a Housing Slump: Rent
By DAVID LEONHARDT
NYT, April 11, 2007
http://www.nytimes.com/2007/04/11/realestate/11leonhardt.html

Digging Out of Delinquency
RUTH SIMON
WSJ, April 11, 2007; Page D1
http://online.wsj.com/article/SB117624718322565654.html

Housing Boom Tied To Sham Mortgages
Lax Lending Aided Real Estate Fraud
David Cho
Washington Post, Tuesday, April 10, 2007; Page A01
http://www.washingtonpost.com/wp-dyn/content/article/2007/04/09/AR2007040901463.html