More on housing
(Dan here…Lifted from Bonddad blog by NewDealdemocrat):
More on housing
I’ve elaborated on my dissection of October housing permits and starts over at XE.com.
Anecdotally, I know of three twenty-somethings, two of whom are single, who are blue collar workers in the construction or retail sectors, all of whom are in the process of moving out of apartments into existing homes. The story for all three is basically the same: compared with rents, the monthly payments on a house is a compelling bargain.
Whether or not the plural of anecdote is data, somehow I doubt these three people are the only ones to make that calculation — which supports the data I published a month ago pointing out that even though house prices are very high, the monthly payment is very reasonable compared with the last 30 years, and a bargain compared with soarding rents.
Anecdotally, it depends on where you work and live.
Anecdotally, in the SF Bay Area I know at least dozen or more highly pa0d professionals who say mortgages in including tax breaks are a-wash except that for equivalent homes, neighborhoods, and distance to work, rentals are far more affordable even after tax breaks.
For purchases of equivalent homes they consider that distance to jobs is the deciding factor. After considering all factors, their choices are ultra-long commutes (moving to far lower priced housing far from work) or renting.
Anecdotally, I know a well paid early 30’s secretary who had to move to the central valley and endure a 4 day/week 2 hour commute each way to afford to purchase.. her husband likewise — but they have no kids yet (a saving grace). Two working stiffs who have to live 2 hours from jobs to afford to purchase. Nice huh?
It’s not all about rent v purchase values… it’s about quality of life. if it were only about paying less by purchasing everybody would live 2 or 3 hours from work, but then rental prices much closer to work would drop like a rock so renting would be far less costly with a much greater quality of life.
It’s really very simple in the fundamentals:
Draw concentric circles with radius 0.5 (hrs from work center), incrementing by 0.25 hours up to 2 hrs from center.
Pick any population density in the inner circle.. call it housing density if you wish, for that matter.
The total area between each successive ring of the circles is the area between 0.5 and 0.75 hours from work, 0.75 and 1.0 hrs, etc, ending with the area between 1.75 hrs and 2 hours from work.
Then the relative density in each section is as shown below:
If property values relate to density then for the same population size or number of residences (say Single Family Dwellings for example) the further you commute the lower your housing costs of purchase.
If housing construction costs are the same regardless of distance to work, then the difference in densities reflect the differences in real-estate and prices.. Of course since land is limited to each circle’s boundaries, then demand for closer to center real-estate forces those prices up by more than just the density values would indicate, since there is both competition for both business and residential use real-estate as well..
This is ultra simple basic economics stuff.
Sorry ’bout the crunched numbers formatting – blame AB for that.
I (seriously) like the current Moscow method of clearing thousands of (4000 to 8000 — forget why there are two figures) three and four story buildings to make way for residential high rises. Kills street life — cafes, shops — but is the wave of the future.
When I was born there were 140 million Americans. Seems like only yesterday. Now there are 330 million. By 2050 there will be 500 million. And so on, and so on. Rents and real estate are skyrocketing as older building dwellers hang on to their neighborhoods. Not no more; someone’s go to give.
Vlad comes off as super smooth, total despot in this book — different stages of communism and Russia’s follow on stages through the eyes of seven real protagonists at different levels of Russian society at the different times. But Vlad has got real estate right.
i think we (old folks) always understood that it was cheaper to buy than to rent… as long as you had the money up front at least to cover the down payment, and your life was stable enough so you could expect to own the same home for decades.
even if the mortgage is higher than rents, you lock in the price at the time you buy, and ten years later your mortgage is half the cost of rent, and when you do sell you get a lot of your money back.
that may have changed. no one is stable enough to count on being able to own a home long enough for the investment to pay off. and the games banks play can destroy your investment in a day while the government laughs at free enterprise fraud and abuse.
don’t know what i’d do in today’s market. probably live under a bridge.
but i do recommend owning your own home. just be careful. maybe buy that house in the country and rent it to someone while you live closer to your work?
not sure about the economics of this. but it’s nice when you are old not to have to worry about rents (or even mortgages). and “economics” isn’t everything.