Tuesday, March 30, 2010

#s Don't Lie

Hola, People.
The Wall Street Journal just reported on an organization (The Center for Economic and Policy Research in Washington DC, or CFEAPRIWDC. Not the catchiest acronym) that came out with a crazy formula that can determine if you should buy a home or rent. It's called the "price-to-rent-ratio" (Again, not too catchy).
"Take two houses of similar size and quality—one for sale and one for rent—in the same neighborhood, or comparable neighborhoods. Take the price of the home for sale and divide it by the total cost of renting the other house for a year. If the resulting number is higher than 20, it's likely the price of the home for sale could fall further. Thus, renting might be a better option, says Mr. Baker. However, the price is most likely near its low if the figure is 15 or below; 15 is the general average price-to-rent ratio over time, Mr. Baker says, and the number at which rental and ownership costs are close to even". That's what he says. I like that he put a formula to it, I just do not understand his reasoning. The strange thing is, I agree with the out come.
Here's where he said San Diego is:
"Median home price: $387,816 (Closer to $350,000)
Average monthly home payment: $2,525 (Could be, with taxes & ins)
Average rent: $1,249 (Is he kidding? probably closer to $1800)
Price of appliance repair: $46.79 (23% below average) (I have no idea).
The article further states:
"San Diego presents an attractive buying opportunity. Prices have stabilized and in many cases are going up, says Mr. Yun.
Services are also below the national average, which puts another check in the buy column."
So, I do not know how he came up with his #s or his formula, but I do agree with this Nutty Professor's hypothesis for San Diego. I have no idea what the rest of the country think of his findings.
Click on the title for the rest of the article.
God Bless.