When did America turn from a nation of self-sovereigns, the first nation in a world where citizens were equal and their king was their elected servant, into a nation ruled by a secretive and powerful elite, robber barons and petty loanshark princes?
I mean seriously, it's like we're the victims of a runaway machine over which we have no control or say. As I've heard in a song lyric, "It's like we're trapped in the belly of this terrible machine... and the machine is bleeding ot death."
When did America turn from a nation of self-sovereigns, the first nation in a world where citizens were equal and their king was their elected servant, into a nation ruled by a secretive and powerful elite, robber barons and petty loanshark princes?
Oh, and on topic, not only will the price to rent ratio overshoot, it will also be subject to falling wages and rents. Rents are going down as we speak, which means that if home prices do not also go down, the ratio will get higher.
These graphs are GREAT. Anyone have data on median income vs median home price? Price/Income and Price/Rent are (what I know to be) the most basic fundamental comparisons in housing.
I talked my parent's out of a rent increase for there props. because of the very same argument. They were convinced rents were going up......and had to adjust to market.
Ministry of Truth, True. Right now rents are falling - but that always happens during a recession as people double up. I'm pretty sure that most of these people will be hoping to get back on their own again some day!
MOSCOW, Nov. 24 (UPI) -- The United States is heading for collapse amid its financial crisis, a leading political analyst in Russia says.
Igor Panarin, a professor at the Diplomatic Academy of the Russian Ministry for Foreign Affairs, said in an interview with Izvestia, published Monday, that the U.S. economy is in dire straits, RIA Novosti reported.
"The dollar is not secured by anything. The country's foreign debt has grown like an avalanche, even though in the early 1980s there was no debt. By 1998, when I first made my prediction, it had exceeded $2 trillion. This is a pyramid that can only collapse," he said.
Asked when the U.S. economy would collapse, Panarin said the process has already begun.
"It is already collapsing. Due to the financial crisis, three of the largest and oldest five banks on Wall Street have already ceased to exist, and two are barely surviving," he said. "Their losses are the biggest in history. Now what we will see is a change in the regulatory system on a global financial scale: America will no longer be the world's financial regulator."
Rents are indeed falling, and not entirely due to "doubling up."
We can't ignore the oversupply factor: Americans have been having fewer children, yet for the last 10 years, and army of millions of illegal aliens were throwing up Pulte and Toll Brothers houses, not to mention all the houses / lofts / luxury condos.
Based on my calculations using Case Shiller Data, Miami, as an example, has another 29.32% to fall base on historical performance averages.
This calculation does not factor in the unknown impact of high unemployment and lack of salary increases adjusted for inflation.
What I have found is that Case Shiller only tells a very small aspect of the story and the shock to the economy can make things much worse.
Lastly, we are in the historical portion of the year where housing accelerates to the down side. on a national basis, we may see another 18%-21% loss between now and Feb. 2009.
If there is an oversupply, shouldn't rents and prices move down together?
Anecdotally, that is what's finally happening in my overpriced neck of the woods. People aren't able to sell, so they're putting their houses up for rent. There's more rental supply then I've ever seen, and it's driving prices down.
Call it counter-intuitive, but the best thing our administration needs to do is continue with the military build-up. I think that is the only useful way we can spend all this stimulus. If we are going to end up fighting a war over this anyway we need to make sure we win the war.
How would you feel if you loaned your buddy money and he went out and bought a small army of mercenaries that were the best in the world? Wouldn't that make you think twice before trying to collect?
It looks like we are planning to welsh on our debt... so lets make sure we can accomplish that.
Please someone explain - as price of houses rise, then in some markets, rents may rise. This is the dynamic in NYC. Many are forced to rent at high rates because of the excessive prices of condos.
On the other hand, as rents soften, they do have an impact on condo prices bringing them down.
But, then there is the anomaly of rents increasing because people are kicked out of or cannot afford condos or cannot pass the board requirements in coops.
So, in NYC, the relationships are complex.
I also wonder how the ratios incorporate the tax advantages of owning - deducting interest and property taxes on condos without that available to the renter.
Perhaps the Govt. should make taxes and interest incorporated in rent a deduction.
Some new complexes more than half empty. But as they're "luxury Apartments" they require 1 year leases, first last and are trying to rent for $2500/mo. Good luck.
GDP: The third quarter drop was the biggest for the economy since a 1.4% decline in the third quarter of 2001, the last full quarter that the U.S. economy was judged to be in a recession.
shrinking GDP=lower rents more housing inventory forsale
If I really think about it; all a bad actor would have to do is take-pver our allies. We are pretty well isolated with both Ocean's. Are the Chinese going to swarm our shores coming over in 30 ft boats?
However if I was South Korea, Japan, India, Australia, I'd feel really nervous about a collapse of America... same thing with the former Soviet countries.
Everyone relied on us to save them... well no more "Team America" anymore. I'm not sure our military leaders understand this; but could we fight 3 fronts? Russian-Eastern Europe; Middle Eastern; and Pacific? I'm sure we'll try... but I still think our land is well isolated.
WSJ "Breaking News": AIG announces restrictions to executive compensation, giving a $1 salary for CEO Liddy and eliminating bonuses in 2008 or raises in 2009 for its top seven officers.
"If we are going to end up fighting a war over this anyway we need to make sure we win the war."
YLSP | 11.25.08 - 11:23 am | #
YLSP,
You will not see this in the MSM...
I didnt realize how many bad guys there were until we had broken through the enemies lines and forced them to retreat. It was roughly 250 insurgents against 30 of us, the corporal said. It was a good day for the Marine Corps. We killed a lot of bad guys, and none of our guys were seriously injured.
This happened last week in A-stan. My bosses son is one of the 30.
This is the area Obama wants a buildup.
These guys hit the ground running about 2 months ago going places they were told are "Strongholds".
Full article on Military.com
Yes,I was in the Corps..
Had a friend who was buying large apartment complexes and converting to condos. Made money. Unfortunately when the music stopped he didn't have a chair
yagij writes:
WSJ "Breaking News": AIG announces restrictions to executive compensation, giving a $1 salary for CEO Liddy and eliminating bonuses in 2008 or raises in 2009 for its top seven officers.
You forgot the word "voluntary" which was included
Wouldn't it make more sense to form a ratio out of something like monthly principle+interest (assuming a 30 year fixed-rate loan with 20% down) to rent than price to rent, to account for interest rate changes?
(I perfectly understand not everyone put down 20% on a 30-year fixed rate; that's merely for the purpose of standardizing the numerator.)
Some very good points in this string. I would like just to remind reader that the CS Q3 index relates to deals being made in the early Spring. By today, deals are probably at prices 10% lower
It seems to me that a P:R of 1.0 represents a price floor- at that point, investors will buy rental properties for cash flow without worrying about further depreciation (in fact, it can become an incentive for tax reasons). Any depreciating real estate market is likely to hit 1.0 before bouncing back.
Well calling it a credit crisis is still very "cute".. Putting the horse before the cart IMO. As if extending more credit will make all these problems go away.
If you didn't catch the summary that C's CFO gave as reason to offload it's crap to us it's quite the snake oil sales job.
"These are quality assets that the gov't will make money on"...to paraphrase.
"These are quality assets that the gov't will make money on".
Which is why we're selling them to the gov't at $0.90. Wouldn't want to sell these hot items to private investors. Nope, we want to make a gift to the gov't and taxpayers.
Werner, at this point, most Americans think war is how international relations work.
And that America's ability to cause megadeaths whenever it wishes is what makes America the beacon of freedom and democracy that Americans believe their country is.
At this point, America as a society is drifting into a sort of fantasy that the power that comes from the end of the gun (notice how many American posters talk about personal weapons here) compensates for all other concerns.
Sort of like SUVs being a rolling advertisement for a male purchaser's sense of insecurity - if Chrysler marketing material is to be believed.
This is one reason Americans dismiss the EU - it just doesn't have the military power to invade another country, which means that it is a weak and ineffectual political organization. Unlike the U.S., which can invade anywhere it wants, and bankrupt itself at the same time.
Those price-to-rent numbers don't tell the whole story. The other part of the story is median household price to median household income, which is actually driving the price-to-rent numbers.
Well price to rent ratios are unlikely to overshoot as severly on the downside as the did on the upside. Owner occupiers aren't the only market for housing. Once the price falls enough that the properties ACTUALLY cashflow INTENIONAL landlords may buy them. OTOH in bubblier markets, the oversupply of housing is so severe that rents are likely to fall. And arguably, rents are a trailing indicator since most people have annual leases. Most rents were negotiated several months ago. And I'm not sure that those "month free" deals are factored in.
Last week, my friends rented a 3-bedroom place in Venice for $3800/month. Maybe it would have gone for over four in 2006, but that doesn't seem very cheap to me.
A condo building near me (Miracle Mile), completed last year, has about twenty 2 and 3 bedroom units in it. I talked to a new owner there and was surprised to learn that the building is 95% sold.
However, there are at least a dozen new condo buildings, we're talking hundred-unit monstrosities, being completed near Miracle Mile as we speak. Add into that a possible SAG strike and a major recession. I honestly don't know how it's all going to shake out.
Still, there are far too many mitigating factors to say that it's definitely going back to the 1-1 ration own to rent. For one thing, I haven't heard anything about a repeal of the 1997 Taxpayer Relief Act. That $250,000/$500,000 tax exemption is a huge incentive to own/flip versus renting. Secondly, don't underestimate the draw of L.A. as a world city -- I see more Russians, Koreans, Israelis, and Japanese every day.
I'd say that there's a 50/50 chance that the housing market starts to perk up a little next year. This correction has been sharp and brutal and many may feel (rightly or wrongly) that the lion's share of the risk is behind us.
"That $250,000/$500,000 tax exemption is a huge incentive to own/flip versus renting."
Maybe so, but the law it replaced was a huge incentive to only trade up (unlimited tax exemption if trading up). So the model before the tax law change was to own to flip and then buy a trade up. Compared to the old law we now have an incentive to sell and not rebuy. Or to sell and trade down. Thus creating an increase in supply with a decrease in demand.
The only real incentive to own for the purpose of flipping is the expectation of rising prices. Tax policy is irrelevant without this.
I think that in an appreciating housing market, people are willing to pay a premium to own versus rent. It makes sense that the ratios would skew much higher than in a stable market.
In a depreciating housing market, people will not be willing to pay that premium. House prices )mortgage payments) and rents will move closer together.
However, this could be accomplished by house mortgages moving down faster than rents. Rents don't necessarily have to increase, just decrease more slowly. And if there truly is oversupply (a lot of speculators or landlords with neg cash flow and a quickly depreciating assets, and vacant buildings) I think mortgages and rents BOTH decreasing is the most likely scenario.
I agree that there is a floor when you can buy properties with a positive cash flow. But we're a LONG way away from that in LA.
Hoopajoops,
However eloquent your rant, I have your answer. We turned when we stopped saving and believed we are entitled to everything because we are Americans. Go save a down payment and come back later.
I really need to call my landlord.
When did America turn from a nation of self-sovereigns, the first nation in a world where citizens were equal and their king was their elected servant, into a nation ruled by a secretive and powerful elite, robber barons and petty loanshark princes?
mortgage pig pop-up scared me half to death!
It's never been better time to rent?
I mean seriously, it's like we're the victims of a runaway machine over which we have no control or say. As I've heard in a song lyric, "It's like we're trapped in the belly of this terrible machine... and the machine is bleeding ot death."
Hoopajoops LTD asked...
When did America turn from a nation of self-sovereigns, the first nation in a world where citizens were equal and their king was their elected servant, into a nation ruled by a secretive and powerful elite, robber barons and petty loanshark princes?
1789?
OT:
Cash levels in Hedgistan rising:
1440 Wall Street
But as usual the dreaded "survey" is used which makes it about as accurate as the TED spread.
Ciao
MS
CR - that makes too much sense so will be ignored by policy makers, as they strive forlornly to prop up prices.
Oh, and on topic, not only will the price to rent ratio overshoot, it will also be subject to falling wages and rents. Rents are going down as we speak, which means that if home prices do not also go down, the ratio will get higher.
So many moving parts...so many landmines.
These graphs are GREAT. Anyone have data on median income vs median home price? Price/Income and Price/Rent are (what I know to be) the most basic fundamental comparisons in housing.
Rising rents? I really doubt that with sign spinners trying to fill apartment complexes. Maybe everyone is getting big raises and full employment.
I talked my parent's out of a rent increase for there props. because of the very same argument. They were convinced rents were going up......and had to adjust to market.
Not working out that way.
Ciao
MS
I think January 1997 is 1.0 not 1987
dafox, I'll post graph on price to income too.
Ministry of Truth, True. Right now rents are falling - but that always happens during a recession as people double up. I'm pretty sure that most of these people will be hoping to get back on their own again some day!
Best to all.
Haha, even the russians get it :
Russian expert: U.S. headed for collapse
MOSCOW, Nov. 24 (UPI) -- The United States is heading for collapse amid its financial crisis, a leading political analyst in Russia says.
Igor Panarin, a professor at the Diplomatic Academy of the Russian Ministry for Foreign Affairs, said in an interview with Izvestia, published Monday, that the U.S. economy is in dire straits, RIA Novosti reported.
"The dollar is not secured by anything. The country's foreign debt has grown like an avalanche, even though in the early 1980s there was no debt. By 1998, when I first made my prediction, it had exceeded $2 trillion. This is a pyramid that can only collapse," he said.
Asked when the U.S. economy would collapse, Panarin said the process has already begun.
"It is already collapsing. Due to the financial crisis, three of the largest and oldest five banks on Wall Street have already ceased to exist, and two are barely surviving," he said. "Their losses are the biggest in history. Now what we will see is a change in the regulatory system on a global financial scale: America will no longer be the world's financial regulator."
Russian expert: U.S. headed for collapse - UPI.com
link from : Jesse's Café Américain
PS, yes - thanks - I fixed the typo. The graphs were correct (Q1 1997 and Jan 1997 are 1.
, but the text said 1987.
Thanks1
Rents are indeed falling, and not entirely due to "doubling up."
We can't ignore the oversupply factor: Americans have been having fewer children, yet for the last 10 years, and army of millions of illegal aliens were throwing up Pulte and Toll Brothers houses, not to mention all the houses / lofts / luxury condos.
Based on my calculations using Case Shiller Data, Miami, as an example, has another 29.32% to fall base on historical performance averages.
This calculation does not factor in the unknown impact of high unemployment and lack of salary increases adjusted for inflation.
What I have found is that Case Shiller only tells a very small aspect of the story and the shock to the economy can make things much worse.
Lastly, we are in the historical portion of the year where housing accelerates to the down side. on a national basis, we may see another 18%-21% loss between now and Feb. 2009.
"Werner writes:
Haha, even the russians get it :
Russian expert: U.S. headed for collapse."
...and if there's any country that's an expert on sudden and uncontrollable collapse, it'd be Russia.
"...and if there's any country that's an expert on sudden and uncontrollable collapse, it'd be Russia."
You leave out Argentina and Brazil?
Nostrovia,
FBR is just so funny:
here's a new "update" on it's price targets:
New Old Current Months
Trina Solar Ltd TSL $8.00 $13.00 $7.96 12 Months
General Moly GMO $2.00 $7.00 $0.98 12 Months
Delphi Fincl Grp DFG $15.00 $20.00 $9.69 12 Months
Hartford Svcs Grp HIG $18.00 $37.00 $6.24 12 Months
Metlife MET $44.00 $54.00 $23.00 12 Months
Principal Fincl Grp PFG $21.00 $26.00 $12.47 12 Months
Prudential Fincl PRU $50.00 $77.00 $18.95 12 Months
StanCorp Fincl Grp SFG $35.00 $44.00 $29.26 12 Months
Torchmark Corp TMK $57.00 $70.00 $33.60 12 Months
Pinnacle Gas Resources PINN $1.00 $4.00 $0.62 12 Months
Advanced Micro Devices AMD $3.50 $4.50 $1.86 12 Months
Atmel Corporation ATML $4.75 $6.00 $3.20 12 Months
Fairchild Semiconductor FCS $7.00 $12.00 $3.61 12 Months
International Rectifier IRF $17.00 $22.00 $10.28 12 Months
Linear Technology LLTC $16.00 $26.00 $19.67 12 Months
LSI Corp LSI $4.50 $5.00 $2.71 12 Months
Marvell Tech Grp MRVL $11.00 $13.00 $5.53 12 Months
Maxim Integrated Pdts MXIM $10.00 $14.00 $12.13 12 Months
National Semiconductor NSM $10.00 $14.00 $10.01 12 Months
Silicon Laboratories SLAB $35.00 $39.00 $19.58 12 Months
Cooper Industries CBE $20.00 $36.00 $22.13 12 Months
Atlas Pipeline Prtnrs APL $16.00 $29.00 $7.75 12 Months
Atlas Energy Resources ATN $24.00 $31.00 $15.22 12 Months
Atlas America ATLS $25.00 $54.00 $13.05 12
Ciao
MS
If there is an oversupply, shouldn't rents and prices move down together?
Anecdotally, that is what's finally happening in my overpriced neck of the woods. People aren't able to sell, so they're putting their houses up for rent. There's more rental supply then I've ever seen, and it's driving prices down.
Rents in Los Angeles are going down.
Call it counter-intuitive, but the best thing our administration needs to do is continue with the military build-up. I think that is the only useful way we can spend all this stimulus. If we are going to end up fighting a war over this anyway we need to make sure we win the war.
How would you feel if you loaned your buddy money and he went out and bought a small army of mercenaries that were the best in the world? Wouldn't that make you think twice before trying to collect?
It looks like we are planning to welsh on our debt... so lets make sure we can accomplish that.
I meant to say its driving rents down. It may actually be slowing the decline of home prices,
Please someone explain - as price of houses rise, then in some markets, rents may rise. This is the dynamic in NYC. Many are forced to rent at high rates because of the excessive prices of condos.
On the other hand, as rents soften, they do have an impact on condo prices bringing them down.
But, then there is the anomaly of rents increasing because people are kicked out of or cannot afford condos or cannot pass the board requirements in coops.
So, in NYC, the relationships are complex.
I also wonder how the ratios incorporate the tax advantages of owning - deducting interest and property taxes on condos without that available to the renter.
Perhaps the Govt. should make taxes and interest incorporated in rent a deduction.
Ala
It looks like we are planning to welsh on our debt... so lets make sure we can accomplish that.
I don't think that can possibly be accomplished when we will have zero allies remaining.
(Except Poland, of course)
Waitaminute writes:
...and if there's any country that's an expert on sudden and uncontrollable collapse, it'd be Russia.
So, that makes it the opinion of an "experienced" expert.
YLSP, if the Chinese wanted to, I think they could take us in a fair fight even if we ramped up.
jane in los angeles,
Everywhere I go, I see for rent signs.
Some new complexes more than half empty. But as they're "luxury Apartments" they require 1 year leases, first last and are trying to rent for $2500/mo. Good luck.
Nostrovia,
...and if there's any country that's an expert on sudden and uncontrollable collapse, it'd be Russia.
Actually, the Russians WERE experts of a sort, while we're amateurs...
Closing the 'Collapse Gap': the USSR was better prepared for collapse than the US
GDP: The third quarter drop was the biggest for the economy since a 1.4% decline in the third quarter of 2001, the last full quarter that the U.S. economy was judged to be in a recession.
shrinking GDP=lower rents more housing inventory forsale
If I really think about it; all a bad actor would have to do is take-pver our allies. We are pretty well isolated with both Ocean's. Are the Chinese going to swarm our shores coming over in 30 ft boats?
However if I was South Korea, Japan, India, Australia, I'd feel really nervous about a collapse of America... same thing with the former Soviet countries.
Everyone relied on us to save them... well no more "Team America" anymore. I'm not sure our military leaders understand this; but could we fight 3 fronts? Russian-Eastern Europe; Middle Eastern; and Pacific? I'm sure we'll try... but I still think our land is well isolated.
WSJ "Breaking News": AIG announces restrictions to executive compensation, giving a $1 salary for CEO Liddy and eliminating bonuses in 2008 or raises in 2009 for its top seven officers.
And I'm suppose to feel better now?
"If we are going to end up fighting a war over this anyway we need to make sure we win the war."
YLSP | 11.25.08 - 11:23 am | #
YLSP,
You will not see this in the MSM...
I didnt realize how many bad guys there were until we had broken through the enemies lines and forced them to retreat. It was roughly 250 insurgents against 30 of us, the corporal said. It was a good day for the Marine Corps. We killed a lot of bad guys, and none of our guys were seriously injured.
This happened last week in A-stan. My bosses son is one of the 30.
This is the area Obama wants a buildup.
These guys hit the ground running about 2 months ago going places they were told are "Strongholds".
Full article on Military.com
Yes,I was in the Corps..
Chris
Had a friend who was buying large apartment complexes and converting to condos. Made money. Unfortunately when the music stopped he didn't have a chair
yagij,
If you are not one of the top 8 employees... you are.
AIG is still going to be around in 2009?! What the fuck is going on with them?! Aren't they supposed to be liquidating their assets?
yagij writes:
WSJ "Breaking News": AIG announces restrictions to executive compensation, giving a $1 salary for CEO Liddy and eliminating bonuses in 2008 or raises in 2009 for its top seven officers.
You forgot the word "voluntary" which was included
Wouldn't it make more sense to form a ratio out of something like monthly principle+interest (assuming a 30 year fixed-rate loan with 20% down) to rent than price to rent, to account for interest rate changes?
(I perfectly understand not everyone put down 20% on a 30-year fixed rate; that's merely for the purpose of standardizing the numerator.)
Some very good points in this string. I would like just to remind reader that the CS Q3 index relates to deals being made in the early Spring. By today, deals are probably at prices 10% lower
It seems to me that a P:R of 1.0 represents a price floor- at that point, investors will buy rental properties for cash flow without worrying about further depreciation (in fact, it can become an incentive for tax reasons). Any depreciating real estate market is likely to hit 1.0 before bouncing back.
The price to rent ratio should be viewed in the context of mortgage rates. As such, the fundamental floor and mean should vary somewhat over time.
FACTS: Banks have moved back to historic: 20% downpayment requirements & The US currently has a negative savings rate.
Not a fact, but a hunch: Employment outlook is shaky.
So, if the average guy wants to buy a 200K house...he'll need 40K down..hmmn..he's in debt & his job outlook is bleak...
So, tell me how this will work?
LOLOLOLOL
It would be nice if there was a reliable way of counting how many people are moving back in with their parents, or doubling up with other relatives.
at that point, investors will buy rental properties for cash flow without worrying about further depreciation
Only if they can raise the cash... You may have heard that there's a credit crisis?
YLSP writes:
...but could we fight 3 fronts?
Who talks about war ?? Haven't you noticed that that russian guy talked about : "America will no longer be the world's financial regulator."
What's that got to do with war ?
Well calling it a credit crisis is still very "cute".. Putting the horse before the cart IMO. As if extending more credit will make all these problems go away.
If you didn't catch the summary that C's CFO gave as reason to offload it's crap to us it's quite the snake oil sales job.
"These are quality assets that the gov't will make money on"...to paraphrase.
In what year...2050?
Ciao
MS
What's debt got to do got to do with,
What's debt but a third world problem
Who needs debt when a TARP can cover it!
"It would be nice if there was a reliable way of counting how many people are moving back in with their parents, or doubling up with other relatives."
I think you can look at the difference between actual household formations and the level implied by population growth in the appropriate age cohorts.
"These are quality assets that the gov't will make money on".
Which is why we're selling them to the gov't at $0.90. Wouldn't want to sell these hot items to private investors. Nope, we want to make a gift to the gov't and taxpayers.
Nostrovia,
Buckle up. Obama rally in T - 3 and counting
Anonymous writes:
You forgot the word "voluntary" which was included
Anonymous | 11.25.08 - 11:35 am
If it was, it wasn't there when I copied/pasted the headline verbatim...
Or I missed a joke somewhere.
Or I missed a joke somewhere.
No not a joke. I read "voluntary" in the article I read
"Werner writes:
What's that got to do with war ?"
Werner, at this point, most Americans think war is how international relations work.
And that America's ability to cause megadeaths whenever it wishes is what makes America the beacon of freedom and democracy that Americans believe their country is.
At this point, America as a society is drifting into a sort of fantasy that the power that comes from the end of the gun (notice how many American posters talk about personal weapons here) compensates for all other concerns.
Sort of like SUVs being a rolling advertisement for a male purchaser's sense of insecurity - if Chrysler marketing material is to be believed.
This is one reason Americans dismiss the EU - it just doesn't have the military power to invade another country, which means that it is a weak and ineffectual political organization. Unlike the U.S., which can invade anywhere it wants, and bankrupt itself at the same time.
Those price-to-rent numbers don't tell the whole story. The other part of the story is median household price to median household income, which is actually driving the price-to-rent numbers.
"YLSP, if the Chinese wanted to, I think they could take us in a fair fight even if we ramped up."
Why would ANYONE enter a "fair fight"?
Semper Fi, Cobra......
Well price to rent ratios are unlikely to overshoot as severly on the downside as the did on the upside. Owner occupiers aren't the only market for housing. Once the price falls enough that the properties ACTUALLY cashflow INTENIONAL landlords may buy them. OTOH in bubblier markets, the oversupply of housing is so severe that rents are likely to fall. And arguably, rents are a trailing indicator since most people have annual leases. Most rents were negotiated several months ago. And I'm not sure that those "month free" deals are factored in.
CR: I'm pretty sure that most of these people will be hoping to get back on their own again some day!
What ever happened to "Hope is not a plan"?
Last week, my friends rented a 3-bedroom place in Venice for $3800/month. Maybe it would have gone for over four in 2006, but that doesn't seem very cheap to me.
A condo building near me (Miracle Mile), completed last year, has about twenty 2 and 3 bedroom units in it. I talked to a new owner there and was surprised to learn that the building is 95% sold.
However, there are at least a dozen new condo buildings, we're talking hundred-unit monstrosities, being completed near Miracle Mile as we speak. Add into that a possible SAG strike and a major recession. I honestly don't know how it's all going to shake out.
Still, there are far too many mitigating factors to say that it's definitely going back to the 1-1 ration own to rent. For one thing, I haven't heard anything about a repeal of the 1997 Taxpayer Relief Act. That $250,000/$500,000 tax exemption is a huge incentive to own/flip versus renting. Secondly, don't underestimate the draw of L.A. as a world city -- I see more Russians, Koreans, Israelis, and Japanese every day.
I'd say that there's a 50/50 chance that the housing market starts to perk up a little next year. This correction has been sharp and brutal and many may feel (rightly or wrongly) that the lion's share of the risk is behind us.
I'm only speaking about L.A., btw.
"That $250,000/$500,000 tax exemption is a huge incentive to own/flip versus renting."
Maybe so, but the law it replaced was a huge incentive to only trade up (unlimited tax exemption if trading up). So the model before the tax law change was to own to flip and then buy a trade up. Compared to the old law we now have an incentive to sell and not rebuy. Or to sell and trade down. Thus creating an increase in supply with a decrease in demand.
The only real incentive to own for the purpose of flipping is the expectation of rising prices. Tax policy is irrelevant without this.
I think that in an appreciating housing market, people are willing to pay a premium to own versus rent. It makes sense that the ratios would skew much higher than in a stable market.
In a depreciating housing market, people will not be willing to pay that premium. House prices )mortgage payments) and rents will move closer together.
However, this could be accomplished by house mortgages moving down faster than rents. Rents don't necessarily have to increase, just decrease more slowly. And if there truly is oversupply (a lot of speculators or landlords with neg cash flow and a quickly depreciating assets, and vacant buildings) I think mortgages and rents BOTH decreasing is the most likely scenario.
I agree that there is a floor when you can buy properties with a positive cash flow. But we're a LONG way away from that in LA.
Owners equivalent rent??????? Given that it's a backed out number, how reliable is it as a gauge of real rents?
Hoopajoops,
However eloquent your rant, I have your answer. We turned when we stopped saving and believed we are entitled to everything because we are Americans. Go save a down payment and come back later.