Fortune Magazine is taking a look at the hotly-debated housing bubble and offers some questions that homeowners should be asking in times of market uncertainty.
Is it time to cash out? The article praises one family’s attempt to get out of the real estate market ahead of others who may do the same — mostly baby-boomers trading down — in the coming years. However, an economist warns against cashing out now with the intent of buying back in a few years at a lower price.
Could renting be smarter? Fortune looks at one couple who recently moved to San Diego. They had been renters in the past but were willing to see what they could get in their own house for the amount they budgeted.
For [renting at] $2,350 a month, they have a four- bedroom, 2,100-square-foot home. If they were to purchase that same home today for $700,000 (the going rate for a similar house in the neighborhood), the monthly payment on a 30-year, $630,000 mortgage at 6.1 percent would run them more than $3,800.
The article mentions the home price to rental income ratio. This can be used for valuations akin to the P/E ratio for stocks. In San Diego, this ratio is 27 — a comparatively high ratio. This means you could get a better value for your money by renting than obtaining a mortgage and buying a house.
Part 2 in this short series is here.
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{ 3 comments }
They aren’t taking into account the tax deduction for the mortgage payement. In the first year alone, they would be paying over $38,000 in interest. If they are in the 25% tax bracket, they would save nearly around $9,500 from the mortgage deduction. That brings their monthly payment down to $3,000.
I think I would move to another state.
Darnit. I thought I got it before it posted. I meant to say that they would save “around” not save “nearly around.” I hate grammar errors.
JLP –
I hate them to.
;-)
FMF
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