It used to be an iron law of personal finance that owning a home was the surest way to build lasting wealth. Then along came the financial crisis and the Great Recession, and, if we learned nothing else, we saw that home prices don't rise indefinitely, and can in fact be so wildly inflated that there's no prospect of ever getting back your purchase price. Looking back, if you lived in Las Vegas in 2007, it would have made a lot more sense to ignore that zero-down, all-interest mortgage offer for $1,000,000 and just keep renting a $1,500 condo on the Strip.
So now that the crisis is over, we should be snapping up houses again, right? Wrong. Some real estate markets remain so overheated or unbalanced that it still might make sense to keep on renting. And this infographic by Sha Hwang of WeePlaces, for Trulia, shows exactly where.
[Click to visit interactive version]
The chart is fairly simple: The color coding represents a ratio of the median home price to the average two-bedroom rent, multiplied by twelve. Thus, it roughly shows how many years it would take to buy the median home, paying an average rent. Trulia then created a basic cut off for rent- vs-buy: If it takes decades to pay off a median home price, it's harder to see your home appreciation making up for all the money you lost on maintenance fees and taxes. Here's that same data, in barchart format:
It's no surprise that San Francisco, New York, and Los Angeles top the places where home prices are absurd thanks to a severe limit on housing and a very wealthy portion of the market that distorts overall prices. But there are a couple surprises in there such as Kansas City and Memphis.
Now, you would think that if home ownership made little economic sense in some cities, then the free market would let housing prices stagnate until things came back into balance. We'd guess there are a couple things going on: It takes many, many years for these sorts of macroeconomic adjustments to work their way through the system. But what's more likely is that we've been raised on the idea that you must own a home for so long that people are hardly rational about it any more.
COMMENTARY: What is not explained in the above is why prices are so depressed in some parts of the country, and it is cheaper to rent. The main reason is the real estate overhang or "Shadow Inventory" of homes, that will keep home prices down for some time, and includes properties that are:
- Seriously delinquent (90 days or more).
- Bank REO's (properties owned by banks).
- Properties in the process of foreclosure.
However, the Shadow Inventory is artificially low because many banks have taken their bank repossessed properties off the market.
On November 22, 2010, CoreLogic, a leading provider of consumer, financial and property information and business services, reported that the shadow inventory of residential property as of August 2010, reached 2.1 million units, or eight months worth of supply, up from 1.9 million, or a five-months’ supply, from one year earlier. With visible inventory remaining flat at 4.2 million units, the change in shadow inventory increased the total supply of unsold inventory by 3 percent.
According to CoreLogic, the visible supply of unsold inventory was 4.2 million units in August 2010, the same as the previous year. The visible inventory measures the unsold inventory of new and existing homes that were on the market. The visible months’ supply increased to 15 months in August, up from 11 months a year earlier due to the decline in sales during the last few months.
The total visible and shadow inventory was 6.3 million units in August, up from 6.1 million a year ago. The total months’ supply of unsold homes was 23 months in August, up from 17 months a year ago. Although it can vary and it depends on the market and real estate cycle, typically a reading of six to seven months is considered normal so the current total months’ supply is roughly three times the normal rate.
I refer you to review on my Real Estate blog articles for a thorough explanation of the Shadow Inventory and other issues of deep concern to many economists.
The above infographics clearly show that the decision to rent or buy a home or apartment depends on the location. It's a very risky proposition to think a new homeowner can ride out the market given the total visible and shadow inventory.
Prices are still depressed in 20 out of 25 of the top real estate markets. It's a buyer's market, but it is also potentially a "loser's" market. Somebody else's loss is not automatically your gain. If you intend to purchase as an investment, make sure you can rent the property to create a cash surplus, otherwise don't do it. Understand what prices might look like 2 or 3 years out.
If you intend to own to live-in, have the money for a down payment, and can obtain financing, and you intend to live in that home for a while, it's probably a good decision, but keep in mind that the total inventory of unsold homes is about two year's as of August 2010, and that figure didn't change a whole lot through today. Your area could take years to gain any measurable appreciation to sell at a profit.
Courtesy of an article dated January 25, 2011 appearing in Fast Company Design
It is all depend on the situation of the home owner. It is the private decision of home owner. They want to sale or rent their home. If the owner has financial crisis than they sale their home.
Posted by: omaha homes | 03/18/2011 at 07:49 AM