Author Topic: These Homeowners Decided to Rent Again  (Read 1480 times)

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Offline WTTCHMN

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These Homeowners Decided to Rent Again
« on: June 24, 2022, 08:31:42 AM »
These Homeowners Decided to Rent Again

Some homeowners looked at rising home prices and decided to get out while the going was still good. Now they’re renters again.

https://www.nytimes.com/2022/06/24/realestate/homeowners-renting-housing-market.html

Offline Liar Loan

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Re: These Homeowners Decided to Rent Again
« Reply #1 on: June 24, 2022, 12:17:33 PM »
Not a bad move at this point in the cycle.  Let others be the bag holders.

Offline paydawg

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Re: These Homeowners Decided to Rent Again
« Reply #2 on: June 24, 2022, 02:32:56 PM »
Not a bad move at this point in the cycle.  Let others be the bag holders.

Very risky if they're giving up their low interest rate mortgage
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Offline Liar Loan

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Re: These Homeowners Decided to Rent Again
« Reply #3 on: June 24, 2022, 02:52:07 PM »
Not a bad move at this point in the cycle.  Let others be the bag holders.

Very risky if they're giving up their low interest rate mortgage

Borrowing money at 2.5% in order to get a -20% leveraged return is bad economics no matter how you slice it.  On top of that, if monthly rent is significantly lower than the cost of ownership, what would be the upside of holding a low interest rate mortgage?

Offline irvinehomeowner

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Re: These Homeowners Decided to Rent Again
« Reply #4 on: June 24, 2022, 03:05:42 PM »
In Irvine, is monthly rent lower than owning for comparable properties today?
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Offline Liar Loan

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Re: These Homeowners Decided to Rent Again
« Reply #5 on: June 24, 2022, 04:04:17 PM »
In Irvine, is monthly rent lower than owning for comparable properties today?

OCHN says cost to rent is $3,946 and cost to own is $6,711, so that's a 70% premium to rents (bottom of page 4). 

https://ochousingnews.com/wp-content/uploads/2022/06/City-of-Irvine-June-2022-Market-Report-OCHN.pdf

Of course, that data is already stale because rates breached 6% last week, after it was already published.

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Re: These Homeowners Decided to Rent Again
« Reply #6 on: June 28, 2022, 11:13:18 AM »
It's not just an Irvine phenomenon:

John Burns RE Consulting: Demand Shifting from Owning to Renting

High home prices and rapidly rising mortgage rates have created a rosy backdrop for the rental sector, with many prospective home buyers now priced out of homeownership or forced to purchase a smaller home in a less desirable area.

A little over a year ago, the monthly cost of owning (as we calculate it*) and renting were virtually identical. Now, owning a home costs $839 more per month than renting. This differential is almost $200 higher than at any time since the turn of the century.

(Scroll to the right on the graphic to see how things compare now to the prior peak in 2006.)




https://www.realestateconsulting.com/demand-shifting-from-owning-to-renting/

Offline The California Court Company

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Re: These Homeowners Decided to Rent Again
« Reply #7 on: June 28, 2022, 11:26:13 AM »
so rent demand goes up, landlord will; raise the price; purchasing demand goes down, forcing sellers to lower the price, until we reach equilibrium. econ 101.
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Offline Liar Loan

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Re: These Homeowners Decided to Rent Again
« Reply #8 on: June 28, 2022, 11:32:26 AM »
so rent demand goes up, landlord will; raise the price; purchasing demand goes down, forcing sellers to lower the price, until we reach equilibrium. econ 101.

Yes agreed, but that is based on today's employment level.  If unemployment suddenly goes up, then all bets are off.  Demand for both purchases and rentals will decline as household formation drastically slows down.

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Offline daedalus

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Re: These Homeowners Decided to Rent Again
« Reply #9 on: June 28, 2022, 06:19:35 PM »
Every single "econ 101" argument has an implied "all else being equal" caveat.

Plus don't ignore actual utility in the comparison.  For most people, renting is not a perfect substitute for owning; many place greater value in owning, so have a higher willingness to pay.  Of course, a lot of people are idiots when it comes to math and choices, and theory is just that.

Offline HMart

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Re: These Homeowners Decided to Rent Again
« Reply #10 on: June 29, 2022, 08:29:00 AM »
Rational actors, lack of information, switching costs, etc. Anyways, most of the people profiled in the NYT article have additional non-economic reasons to rent. Short term horizon, preference for amenities more often found in rental properties (especially in the tristate area), recent changes in family, etc.

Offline WTTCHMN

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California renters could save $112,000 vs. owning over 5 years
« Reply #11 on: June 29, 2022, 10:22:57 AM »

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Re: These Homeowners Decided to Rent Again
« Reply #12 on: June 29, 2022, 11:13:37 AM »
California renters could save $112,000 vs. owning over 5 years

https://www.ocregister.com/2022/06/29/california-renters-could-save-112000-vs-owning-over-5-years/

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Offline CalBears96

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Re: California renters could save $112,000 vs. owning over 5 years
« Reply #13 on: June 29, 2022, 11:18:40 AM »
California renters could save $112,000 vs. owning over 5 years

https://www.ocregister.com/2022/06/29/california-renters-could-save-112000-vs-owning-over-5-years/

It's laughable that the author of the article just assumes 1.5% property tax across the board for owners.

Offline Liar Loan

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Re: California renters could save $112,000 vs. owning over 5 years
« Reply #14 on: June 29, 2022, 11:51:22 AM »
California renters could save $112,000 vs. owning over 5 years

https://www.ocregister.com/2022/06/29/california-renters-could-save-112000-vs-owning-over-5-years/

It's laughable that the author of the article just assumes 1.5% property tax across the board for owners.

Why is that laughable?  I think the more egregious assumption is that owners can save 20% of interest and taxes as a deduction on their income tax.  With the higher standard deduction, SALT cap, and 750k cap on mortgage interest, most buyers aren't saving 20% as a deduction.

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