Top 25 Cities: Price to Rent and Price to Income Ratios

J.D. Roth over at Get Rich Slowly put up a post Wednesday about renting vs. buying, sort of a follow-up to my 2007 post over there. In it, he said that he couldn’t find any info on current price-to-rent ratios around the country, so I thought I would update the list I put up back in September with some more up-to-date information.

This time I was able to locate sold price info for Texas and Indiana, so the list below is the complete set of price, rent, and income data for the 25 largest cities in the US by population. Data is current as of November 2009. For a historical comparison, hit this 2007 Fortune table (the “The P/R Ratios” tab has 15-year averages).

Also, if you’re just interested in how things look around the Seattle area, hit this October post that breaks down seven neighborhoods in the area (note that the method used in that post is different than the one used to compile the table below).

Note that the “P/R” column is the median price divided by the median rent over the course of a full year, which is the “Rent” column times twelve.

Click on any column header to sort by that column.

City State Pop. Density Price Rent Income P/R P/I I/R
New York NY 8,363,710 27,440 $477,900 $1,013 $50,094 39.3 9.5 4.1
Los Angeles CA 3,833,995 8,205 $407,900 $1,024 $47,904 33.2 8.5 3.9
Chicago IL 2,853,114 12,649 $234,100 $837 $45,973 23.3 5.1 4.6
Houston TX 2,242,193 3,828 $75,000 $752 $43,429 8.3 1.7 4.8
Phoenix AZ 1,567,924 2,938 $141,300 $850 $49,137 13.9 2.9 4.8
Philadelphia PA 1,447,395 10,721 $144,800 $772 $36,236 15.6 4.0 3.9
San Antonio TX 1,351,305 2,809 $81,098 $713 $41,416 9.5 2.0 4.8
Dallas TX 1,279,910 1,427 $80,000 $746 $39,980 8.9 2.0 4.5
San Diego CA 1,279,329 1,612 $380,000 $1,208 $61,415 26.2 6.2 4.2
San Jose CA 948,279 2,223 $468,400 $1,277 $79,004 30.6 5.9 5.2
Detroit MI 912,062 6,378 $25,300 $709 $28,155 3.0 0.9 3.3
San Francisco CA 808,976 17,323 $716,700 $1,224 $72,322 48.8 9.9 4.9
Jacksonville FL 807,815 1,062 $140,800 $826 $49,466 14.2 2.8 5.0
Indianapolis IN 798,382 2,152 $76,948 $678 $42,779 9.5 1.8 5.3
Austin TX 757,688 2,396 $121,263 $865 $50,345 11.7 2.4 4.8
Columbus OH 754,885 3,556 $128,200 $713 $43,482 15.0 2.9 5.1
Fort Worth TX 703,073 1,828 $80,000 $756 $47,893 8.8 1.7 5.3
Charlotte NC 687,456 2,516 $161,800 $777 $51,479 17.4 3.1 5.5
Memphis TN 669,651 2,327 $115,100 $733 $36,463 13.1 3.2 4.1
Baltimore MD 636,919 7,889 $159,100 $797 $39,507 16.6 4.0 4.1
El Paso TX 613,190 2,447 $96,000 $584 $36,848 13.7 2.6 5.3
Boston MA 609,023 12,561 $327,300 $1,096 $50,654 24.9 6.5 3.9
Milwaukee WI 604,477 6,296 $128,600 $709 $36,584 15.1 3.5 4.3
Denver CO 598,707 3,905 $216,800 $753 $44,914 24.0 4.8 5.0
Seattle WA 598,541 7,179 $377,300 $912 $60,550 34.5 6.2 5.0

Also, I pointed this out in our mid-week open thread, but thought it was worth mentioning here as well. I find it fascinating what a telling indicator it is of just how much the general mindset about home ownership has changed when you compare the comments on my 2007 post over at Get Rich Slowly and J.D.’s follow-up from Wednesday.

A selection of comments from each post…

2007:

  • This is one of the worst pieces of financial advice I have ever seen. Yes, if you want to get poor slowly, by all means rent instead of buy.
  • House values also increase over time. A renter gets no benefit from this.
  • I hate it when PF Blogs let someone post about how renting isn’t such a bad deal. Renting sucks. How much do the renters benefit when property values rise? They don’t.
  • All else being equal, when you rent you’re paying the mortgage, utilities, repairs, etc… AND the landlord is making a profit.
  • Debt is not always bad – it can work as a multiplier for your financial leverage, and at least when buying a house, you’ll probably get a return.

2010:

  • A lot of the time I wish we were still renting.
  • I’ve done both, and am currently stuck with a house I am renting because it won’t sell. I probably won’t buy again.
  • I appreciate this. I rent, I plan to keep renting for a long time, and I get very tired of friends and coworkers giving the whole “throwing your money away” crap.
  • I came pretty close to buying a few times before I figured this out, and I’m really glad that I didn’t. I don’t envy any of my friends who are upside down on their mortgages and stuck wherever they are, but even ignoring the bubble/burst effect, ownership isn’t always that great of a deal over the long haul.
  • I really appreciate how much money I save by renting in just time usage alone.
  • This is a great article. Thank you for the insight. I’ve read several articles on this topic but this is the best one I’ve seen.

What a difference two and a half years makes.

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

135 comments:

  1. 1
    Stb says:

    Would someone help explain the 5.7% GDP number released this morning? I always like the analysis from the people on this site. Thanks.

  2. 2
    AMS says:

    I/R

    By dividing the last two columns, one can get I/R:

    2.2 New York NY 39.3/18.0
    2.4 Boston MA 24.9/10.5
    5.5 San Francisco 48.8/8.8
    5.3 Los Angeles CA 33.2/6.3
    5.6 Seattle WA 34.5/6.2
    4.4 Chicago IL 23.3/5.3
    6.1 San Jose CA 30.6/5.0
    5.3 San Diego CA 26.2/4.9
    6.0 Denver CO 24.0/4.0
    4.4 Baltimore MD 16.6/3.8
    4.2 Philadelphia PA 15.6/3.7
    4.9 Milwaukee WI 15.1/3.1
    6.0 Charlotte NC 17.4/2.9
    5.3 El Paso TX 13.7/2.6
    4.9 Austin TX 11.7/2.4
    5.9 Jacksonville FL 14.2/2.4
    5.7 Memphis TN 13.1/2.3
    6.8 Columbus OH 15.0/2.2
    1.4 Detroit MI 3.0/2.1
    6.6 Phoenix AZ 13.9/2.1
    4.5 Dallas TX 8.9/2.0
    4.8 San Antonio TX 9.5/2.0
    5.3 Indianapolis IN 9.5/1.8
    5.2 Fort Worth TX 8.8/1.7
    4.9 Houston TX 8.3/1.7

    Sorry, but there are problems here. There is no way Detroit’s I/R is at 1.4. 25/28<1, not 2.1. Using that 15 year average is a big problem.

  3. 3
    AMS says:

    RE: Stb @ 1 – Let’s start here, “Real exports of goods and services increased 18.1 percent in the fourth quarter, compared with
    an increase of 17.8 percent in the third. Real imports of goods and services increased 10.5 percent, compared with an increase of 21.3 percent.”

    The imports increased less than the increase in exports, so without going over the data carefully, I am going to guess that the weaker dollar helped promote increased exports and a lower trade deficit, which in turn increases the GDP.

    http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

  4. 4
    AZ says:

    I HAD been for years going to

    http://www.housingtracker.net/affordability/

    for exactly this information, which was one of the leading factors in my decision to stay out of the bubble both before and after moving to Seattle from Austin.

    Though it looks like they have stopped updating it :(

  5. 5
    HappyRenter says:

    If I sort the list in terms of P/I, Seattle is 5th. If I sort it in terms of Income, Seattle is 4th. It could be that a lot of rich people live in Seattle.

    I wonder what the distribution of income looks like in Seattle compared to other cities. It might be interesting to look at not only the price to income ratio but also how the income is distributed, i.e., are there a lot of rich and very rich people in Seattle who can afford to buy very expensive properties?

  6. 6
    The Tim says:

    RE: AMS @ 2 – Sorry, I double-checked the spreadsheet I used to generate this table and I did find a bad reference in one of the formulas that caused the P/I column to be off for some cities. I have updated the post with the correct numbers. Also note though that the P/R ratio is the price divided by a full year’s worth of rent, so you can’t just straight divide the P/R column by the P/I column to arrive at I/R. That gives you I/(R*12).

    RE: HappyRenter @ 5 – Well I’m using medians for price, rent, and income here, so by definition half the people make more than the number in the table, and half the people make less.

  7. 7
    WifeNeedsAHouse says:

    What is P/I? Doesn’t add up as price/income, in the top few anyway, except Seattle.

  8. 8
    The Tim says:

    RE: WifeNeedsAHouse @ 7 – As noted above, there was an error in the table as posted originally. It has been corrected.

  9. 9

    The Household Income In the Table is Way too High

    It includes cohabitation anomalies spiking it up, so although its a measure of cohabitation increasing with this recession/depression; it does not document per capita unemployment impacts degrading per capita pay. People mostly buy homes qualified with one income and some with two incomes [married]; not cohabitated gypsy bunches.

    Even our current unemployment rate with severely underemployed added in per BLS at 17.3% is a joke too; as it excludes snow-balling ghost unemployment [giveups with no jobs] and those never in the labor pool yet, i.e., snow-balling unemployed college graduates.

    Speaking of college graduates in America:

    The College Graduates Aren’t Counted Unemployed if They’re Flipping Burgers

    In fact, with no work experience or a job they aren’t counted unemployed, period.

    Irrespective, a Dec 2009 article on recent college graduate unemployment in America states in part:

    “…And data from the Labor Department show that the unemployment figure for college graduates in that age group was 10.6% in the third quarter — the highest since early 1983 and more than double the rate for older college-educated workers….”

    http://articles.latimes.com/2009/dec/14/business/la-fi-jobs-graduates14-2009dec14

    The article went on to say, as entree pay plummets to poverty level for college graduates, their future is grim indeed….the beginning pay is the benchmark for the future base pay, even decades in the future. These are your 1st time home buyers bloggers, Burger King pay or there-a-bouts….LOL

    I still say get a college education, but don’t kid yourself; as long as America adds more and more in-sourced population density to the college pool, our domestic college graduate kids are shafted even more. They already are shafted by uncontrolled corporation planned growth, educated or uneducated.

  10. 10
    AMS says:

    RE: The Tim @ 6 – P/(R*12) = P/R in the chart. That is, P/R is the price over annualized rent. Income is annualized too.

    So (P/R)/(P/I) = I/R, all annualized, with propagation of computation rounding.

    As long as you were fixing it up, why not include an I/R column?

  11. 11
    HappyRenter says:

    By The Tim @ 6:

    RE: HappyRenter @ 5 – Well I’m using medians for price, rent, and income here, so by definition half the people make more than the number in the table, and half the people make less.

    This is clear, thanks. I’m still wondering if I could find a plot showing the distribution of income, i.e., a histogram showing how many people earn what income.

  12. 12
    AMS says:

    RE: HappyRenter @ 11 – Try census.gov. I am guessing you could get the data you seek, but you’d have to plot the histogram yourself.

  13. 13
    The Tim says:

    RE: AMS @ 10 – Okay, just for you, I added I/R.

    RE: HappyRenter @ 11 – I haven’t been able to locate an easy-to-access single source for that data up to date in the last few years across multiple cities. If I find one, I’ll probably write up a post.

  14. 14
    AMS says:

    RE: The Tim @ 13 – Thank you! I do all these calculations by hand, and I know you use automated systems.

    Note that rent in the Seattle market is 20% of the income (multiple of 5.0), but in LA rent is over 25% of income (multiple less than 4.0). In the Detroit market, rent is 30% of annual income.

    San Francisco is particularly interesting.

    Note:

    1. P/R = 48.8 [=~50 for simplicity]
    2. P/I = 9.9 [=~10]
    3. I/R = 4.9 [=~5]
    4. P > $700,000

    So you can buy a home at 10 times income, or you can rent at 20% income. Let’s make the assumption that people don’t have millions of dollars of other assets. If this is true, then the home purchase is a very significant part of their total financial condition. This gets to the poor pricing of risk. Housing was always considered a very low risk investment, and during the rapid increase in prices, it was considered a low risk investment that provided way above average returns. Even if this might be true, does it ever make sense to be so heavily invested in a single asset that’s about 10 times annual income? I don’t mind playing roulette, but why did people think borrowing so many times annual income to make the purchase was low risk?

    Kary has discussed the “wealth factor.” Basically that if the population has cash laying around, then high prices may be maintained. I am not sure where the critical point is in terms of the percentage of the population with excessive wealth. That is, how much of the population can hold wealth, consume and keep prices high?

    To balance income to existing wealth, I am going to suggest net present value be used. No, I am not sure of the right discount rate, but someone with low income and high wealth can be balance against someone with high income and low present wealth. The high present wealth does not need to be discounted, as it is present. We might, however, discuss future value.

    Ultimately, what keeps the Bay area home prices so high?

  15. 15
    Ray Pepper says:

    Wasn’t there a person on here called “Renters are Losers”???? Or am I mistaken?

    When will someone step up and have their name “Homeowners are Losers”–I think its fitting for 2010 and beyond until we extinguish all these shortsales and foreclosures !

  16. 16
    HappyRenter says:

    RE: The Tim @ 13

    Assuming that this is a Gaussian distribution, it would be nice to see at least some sort of standard error. That could give us an idea how wealth is distributed across the population.

    This is crucial, because if the distribution is narrow, it means that almost nobody can afford a 1 million dollar home. On the other hand, if the distribution is wide, it means that a significant part of the population can afford expensive housing.

    I still like the table Tim posted today, though. I think it’s a great comparison. Thank you. Right now, we are considering renting a bigger place instead of buying one. Does anybody have experience with renting with the option of buying later?

    Thanks!

  17. 17
    AMS says:

    RE: HappyRenter @ 16 – First, income is not Gaussian. Second, generally the bottom income is considered to be zero ($0). This is not exactly true, but hopefully you’ll allow me to continue. It should be clear that if the median income is $50k, if the distribution were Gaussian, then the maximum income would be $100k.

    Also if we look at the number of sales at double the median price and the number of income earners at double the median income, you might find some correlation. There might need to be some adjustment factor.

    Finally a $1M home in SF is only 40% above median for the area, but in Detroit it’s closer to 4000%

  18. 18
    WifeNeedsAHouse says:

    Looking at the list of cities sorted by P/I, it seems clear that the most desirable cities are at the top, and your options get roughly less attractive as you go down. Why do we (the bubble collective) assume that prices must equalize or be ‘fair’? Isn’t it possible that the most desirable cities will ALWAYS remain overpriced to some degree? Not trying to say there is anything wrong with any of those cities, I’m sure many people are very happy in all of them, but if there were an overall ‘desirablity’ ranking, it seems like this is it. This is how far people are willing to stretch to live in these cities. Why do we assume that will ever go away?

  19. 19
    AMS says:

    RE: WifeNeedsAHouse @ 18 – What about risk?

  20. 20
    WifeNeedsAHouse says:

    Not sure what you mean, buying a house anywhere is always a risk. But mainly for families, it seems one that most people decide is worth taking.

  21. 21
    patient says:

    By Ray Pepper @ 15:

    Wasn’t there a person on here called “Renters are Losers”???? Or am I mistaken?

    When will someone step up and have their name “Homeowners are Losers”–I think its fitting for 2010 and beyond until we extinguish all these shortsales and foreclosures !

    Ray, I think the foreclosures and shortsales are the solution to the housing market and not the problem. Short sales and foreclosures helps with the price discovery needed for the return to a healthy and sustainable housing market. Unfortunately I might add since the normal housing market seems unable/unwilling and far to slow to react to the permanently weakened abilities on the demand side.

  22. 22
    AMS says:

    RE: WifeNeedsAHouse @ 20 – There is risk in buying a cup of coffee. I bought one the other day on the road, and I didn’t like it. What did I do? Dumped it out. Was the risk worth taking? Yes.

    On the other end are the people who buy homes at 6 times annual income or more. Certainly the impact of loss (or gain) is much greater. Is it worth it? Some people are compulsive gamblers. I took my chances with a cup of coffee. What financial impact did it have when it ended up being a poor quality product?

  23. 23
    WestSeattleDave says:

    RE: Stb @ 1 – I’m surprised that nobody has mentioned the inventory correction as a main contributor to the high GDP number. During the early part of the Great Recession, people stopped buying stuff, companies stopped making stuff, and mostly sold off existing inventories (sometimes at fire sale prices). Now, those same companies find themselves with little inventory, so they are ordering more and manufacturers are building more. It’s this burst of economic activity that is showing up in the GDP numbers.

    From today’s Calculated Risk bolg: “Any analysis of the Q4 GDP report has to start with the change in private inventories. This change contributed a majority of the increase in GDP, and annualized Q4 GDP growth would have been 2.3% without the transitory increase from inventory changes.”

    Once business have replenished their inventories, this boost will fade.

  24. 24

    “I took my chances with a cup of coffee. What financial impact did it have when it ended up being a poor quality product?”

    Had it been a triple grande half caf tall skinny hazelnut latte from SBUX, it could have had a significant financial impact. Not quite as much as a mortgage payment, but still…

  25. 25
    ownersRlosers says:

    RE: Ray Pepper @ 15

    I like Ray Pepper’s posts.

  26. 26
    patient says:

    RE: HappyRenter @ 16
    “Does anybody have experience with renting with the option of buying later?”

    We have been asked many times but imo this is not in a renters best interrest. What are the chances that the home you are renting will be the best home for you to buy from all of the homes on the market at the time you want to buy? Pretty slim to none would be my guess. When you buy you want to have as few limitiations as possible, rent to own is a pretty big limitation.

  27. 27
    HappyRenter says:

    RE: AMS @ 17

    Thanks for the explanations.

  28. 28
    AMS says:

    RE: WifeNeedsAHouse @ 18 – Oh, one more comment. You suggest that “the most desirable cities will ALWAYS remain overpriced.”

    Detroit was far more desirable before the Race Riots. Sure the current desirable cities will be at the top, but who is to say how long that the desirability will last? Maybe we should look at what has happened in the Vegas market over the past 3 years? Of course Vegas isn’t at the top of the P/I list today, but it could have been just a few years ago.

  29. 29
    AMS says:

    RE: HappyRenter @ 27 – On the second part, “Does anybody have experience with renting with the option of buying later?”

    Let me suggest this: Attempt to push the purchase price as high as reasonably possible and the rent as low as possible. Don’t tip your hand. I don’t care how much of the rent goes toward the purchase, it could be 100% or very little. The basic idea is to get the rent as low as possible, while the owner thinks you will buy at some fictional high price. Be prepared to move. Don’t plan on buying.

    If the market goes up enough, plan on buying, as your purchase price will then look low.

  30. 30
    HappyRenter says:

    RE: patient @ 26

    Can’t you still decide for a different home at time of buying? Why are you limited? Is there an agreement with the landlord that you must buy that house?

    Sorry, I’m kind of new to these things.

  31. 31
    AMS says:

    RE: HappyRenter @ 30 – “Is there an agreement with the landlord that you must buy that house?”

    This is a purchase agreement.

    Step one: Hire an attorney.

  32. 32
    Drone says:

    By Ray Pepper @ 15:

    When will someone step up and have their name “Homeowners are Losers”–I think its fitting for 2010 and beyond until we extinguish all these shortsales and foreclosures !

    No, please no! That will mean that we’re finally at the bottom and it’s time to buy. I’m not ready yet :)

  33. 33
    patient says:

    RE: AMS @ 31 – Or better still, don’t do it.IMO it’s just a trick from the landlord/seller to get you on the hook to buy. Rent and keep your options fully open without any legal or moral obligiations.

  34. 34
    AMS says:

    RE: patient @ 33 – The holder of an option has no moral or legal obligation. He can exercise the option if the market value is above the strike price. The seller is the one with the legal obligation. The seller cannot sell the home while it is subject to an option to sell. Given the totality of the situation, essentially the option holder gets the use and control of the asset. Sure there has to be some consideration for the option, but that’s negotiable.

  35. 35

    RE: HappyRenter @ 30
    As AMS just explained, the renter holding the option is under no obligation to exercise the option and buy the house. Lease options to buy comes in various flavors. Typically, the renter and the landlord will sign an option agreement that specifies the purchase price, and a date in which the option must be exercised by. Often there is money paid to the landlord for the right to have the option. Sometimes money is added to the rent that will go towards down payment.
    In a rising market, a lease option can be a good thing, because you have the right to buy a house at a set price for however long the option period is, two years or whatever.
    In a declining market, it’s probably not a good idea unless the agreed upon price or the rent is significantly lower than market value, and even then there’s a risk involved.
    If you do a lease option, the money you pay for the right to have the option disappears if you choose not to exercise it, and sometimes even if you do. Any extra money you pay in rent to go towards downpayment will also vanish if you choose not to exercise the option.

  36. 36
    HappyRenter says:

    RE: AMS @ 34

    I found something about it:

    http://www.wikihow.com/Buy-a-House-Using-a-Lease-Option

    At the time of lease you pay some upfront money. If you can’t buy the house later you lose that money. The question is how much is the upfront money and can you afford it to eventually lose that money? Or, it might not be the smartest move to lease if you are not almost 100% serious about buying that property.

  37. 37
    AMS says:

    RE: Ira Sacharoff @ 35 – The holder of the option is protected from a declining or under-performing market. If the market value is below the strike price, such as in a declining market, the option holder will not buy.

    Properly valuing the option is clearly depended on the strike price, time, and expected market conditions.

  38. 38
    AMS says:

    RE: HappyRenter @ 36 – Let’s just say, I’ve been involved with some deals where the seller thought he’d be selling at a high price in the future.

    The rent was low. The option cost was low. What more matters?

  39. 39
    AMS says:

    RE: HappyRenter @ 36 – Note how I play the same game that many REALTORs have been known to play: Fill the seller’s head with fantasies about how much money he will get in the future, and then write the contract accordingly.

    In the case of REALTORs they seek to get the listing. The game is tell the seller the property is worth much more than it really is, and then adjust the price later. The selling agent gets a piece of the action by inflating the seller’s expectation about selling price.

    The game is basically the same when specifying a high exercise (strike) price for the option. Clearly the option has no value to any holder, as there is little chance that it will be executed. An option for a low purchase price has value to the option holder.

    On the other side, a seller who wrote the high strike price option should understand that the chance of the option holder buying is very low.

    I have no idea why sellers think that options to purchase at high prices will be executed. When the time eventually arrives, the option holder would be better off just offering fair market value, and the seller cannot do any better than that.

    But, if the cost of the option plus rent is too high, you are correct, the option purchaser paid too much. What can I say to that?

  40. 40

    RE: AMS @ 38
    Exactly. Let’s put some numbers on it. You enter into an agreement for the right to purchase a home for 500,000 dollars. The option price is 500 dollars. The rent is 1400 dollars. You know that the home probably couldn’t sell for more than 450,000 dollars, and you don’t expect home prices to rise. But who cares? If the same house normally rents for 1800 dollars , and you’re getting it for 1400, after a year or two you’ll have reaped the benefits and can walk away, choosing not to exercise the option.

  41. 41

    “In the case of REALTORs they seek to get the listing. The game is tell the seller the property is worth much more than it really is, and then adjust the price later. The selling agent gets a piece of the action by inflating the seller’s expectation about selling price.”

    Just for the sake of clarification, the “selling” agent is typically the agent representing the buyer, and the listing agent is the agent representing the seller, so it would be the listing agent who inflates the seller’s expectation, no?

  42. 42
    AMS says:

    RE: Ira Sacharoff @ 40 – Yet another example why sellers and buyers should hire someone who understands finance, in addition to all the other professionals.

    These people who run out and buy a home naked, it can be ugly.

  43. 43
    AMS says:

    RE: Ira Sacharoff @ 41 – Yes. It should read, “seller’s agent (listing agent).” A true buyer’s agent is not involved in this game.

  44. 44
    HappyRenter says:

    RE: Ira Sacharoff @ 40

    It means that you have to deal a as low as possible rent price, so that you can walk away with no loss. How easy is that?

  45. 45
    AMS says:

    RE: HappyRenter @ 44 – Very easy, given the right seller. Don’t ask me why, but there are too many sellers who want to increase the option strike (selling) price in exchange for lower rent. This is 100% backwards, but whatever.

  46. 46
    WifeNeedsAHouse says:

    RE: AMS @ 28 – I knew Detroit or Vegas would be brought up, I should have clarified. Absolutely, cities can move up and down the list. I think “the most desirable cities will ALWAYS remain overpriced” is still true though, not in reference to what those cities are now, just whatever they may be at any given time.

    And to clarify further, it’s not even that they are OVERpriced, it’s just that the general public places a higher VALUE on those locations. I would never want to live in NYC, I know I would hate it. Prices will likely remain high there anyway, since many many people obviously disagree. On the other hand, I love Seattle. I may want prices to be equal to Indiana’s, but it’s not very likely to happen. I may look at numbers all day and say “prices here used to be 3 times income, and now they are 6, it has to go back” but there are no guarantees, times change, laws change, places change. Obviously there is a lot more money in Seattle now than there was back in the day due to MS. 2 working parents is the norm now. We can all bitch and moan, but many people can and do afford these homes that we all claim are overpriced. Not trying to refute the bubble, that is obviously real too, but there seems to be an expectation that everything HAS TO level out and be an even playing field for everyone, and that seems to be dreaming just as much as the limo driver in Bellevue that owned like 8 properties or whatever that story was.

  47. 47
    AMS says:

    RE: WifeNeedsAHouse @ 46 – “As long as home values always go up more than the cost of capital, go ahead and buy as much as possible.”

  48. 48

    RE: WifeNeedsAHouse @ 46

    That was Then, This is Now

    IMO the old rules have totally changed with horrifying chronic snow-balling unemployment, even in Pink Pony Seattle. The world economy has degraded per capita pay and saying it ain’t so, is the same as saying our current horrifying unemployment is just a lagging indicator…LOL

    You also mentioned two incomes buying houses; wrong again. Most households today are single women and men [most women are single and the King County divorce rate was 70% in five years, the last time I checked]; and if they have a medium income, they bought a SFH or condo in Seattle in the last 20 years.

    Are current home owners in the market? Some may buy up or down; most stay put and save their rubles, especially if they have a whiff of investment savvy. Even Buffet still lives in his old smaller home, how do you think the rich got rich? LOL

    I suppose you may dream that all these high paying folks will be lined up with MSFT and Boeing jobs, so ship our Seattle college grads to Texas and insource to Seattle only higher paid experienced profs….have you ever heard of “outsource”?

    Welcome to the New World Order, all the old rules have changed.

  49. 49
    patient says:

    I can almost guarantee that the landlord will put pressure on you to buy and that it will be ugly. If you enjoy games like he ones AMS suggests, why not? If your like me who likes clean and quick transactions as free from time consuming arguing and negoitations as possible I wouldn’t do it.

  50. 50
    AMS says:

    RE: patient @ 49 – Fair enough. I had a friend who was involved in a car accident. I gave him the data as to what his car was worth, and how much to expect. Let’s just say, I am confident I would have received a significantly larger settlement, but he was willing to agree to a lower amount to avoid negotiating. It’s not his thing. He didn’t want to spend his time and energy that way.

    So, yes, I agree, it does depend on the game you want to play.

    Some people buy homes to flip. Others buy homes from flippers.

  51. 51
    WifeNeedsAHouse says:

    RE: softwarengineer @ 48 – “the old rules have totally changed” hey, that was MY argument! On homeowners, I’d be interested to see your data. Where I live, virtually all homeowners are couples (with or w/o kids), and the majority of them both work. I’m not sure you know what you think you know. MS may be slowing down and laying off in recent years, but that doesn’t mean there wasn’t a huge shift of cash from elsewhere to here in the last 25 years. I wonder if anyone has the data on P/I from 40 years ago, I’d bet Seattle wasn’t near the top of the list then. What changed? And now that these folks are here, now that they have roots, most will stay, and so will their money. Most people that don’t like it here leave pretty quickly, it’s not too hard to figure out.

    Much of the discussion depends on your perspective. Investors clearly follow much different rules than families that are just buying one house. Families decide that it is worth it to them to own, not to make money, but for their family. Investors would scoff, but it’s true. And if you own for a long time, you are not likely to be wiped out unless you bought at the top. Thanks to Tim and the bubble, I’m sure many avoided that situation.

  52. 52
    anonymous says:

    RE: WifeNeedsAHouse @ 46 – Shouldn’t the rent to income (inverse of the posted income to rent) also indicate the desirability of the city, just as much as the P/I? Why is Seattle among the cheapest to rent but most expensive to buy? I’ll bet you could do some sort of averaging between P/I and R/I and come up with Seattle’s true ranking of desirability. The difference between the 2 is what indicates there is still some bubble left around here.

  53. 53
    WifeNeedsAHouse says:

    RE: anonymous @ 52 – I’m not sure. And I’d agree that there probably is some bubble left here. But how much? How long does a family want to wait to find out? If the family plans to stay at least 10 years, does it matter that much? I’m certainly glad I did not buy when I first moved back to this area in early 2008. Now, I’m experiencing diminishing returns as far as waiting goes.

    Maybe R/I doesn’t correlate as strongly to desirability as P/I does because you only rent because you have to, you need a place to live. You may hate where you live, but you still need to live there until you can figure out how to go somewhere else. Buying is a bigger statement, you are saying I like it here and I plan to stay for a while.

  54. 54
    anonymous says:

    RE: WifeNeedsAHouse @ 53 – I think a lot of people choose to rent, regardless of the standard realtor BS. Also, unlike homeowners, there is nothing stopping renters from moving if they like somewhere else better. I don’t see how renters would be more likely to be stuck in a region they hate. One thing I’ll say about the P/I listing you are looking at is a lot of the cities most prone to housing bubbles are on top. Perhaps part of what you are seeing is a ranking of biggest bubbles, rather than most desirable cities.

  55. 55
    AMS says:

    RE: WifeNeedsAHouse @ 53 – “The long run is a misleading guide to current affairs. In the long run we are all dead.” -Keynes

  56. 56
    EconE says:

    By WifeNeedsAHouse @ 53:

    RE: anonymous @ 52
    Maybe R/I doesn’t correlate as strongly to desirability as P/I does because you only rent because you have to, you need a place to live. You may hate where you live, but you still need to live there until you can figure out how to go somewhere else. Buying is a bigger statement, you are saying I like it here and I plan to stay for a while.

    LMAO.

    Yeah. We all hate our rentals and are only living in them until we can figure out how to get a bigger dumpster to claim as our own.

    We eat garbage too…being renters and all.

    Wife needs a house?

    No.

    Wifey wants a house.

    Suzanne Researched It!

  57. 57
    anonymous says:

    RE: anonymous @ 54 – On cities prone to bubbles, here is what I was thinking of when I mentioned that. http://krugman.blogs.nytimes.com/2007/10/20/the-two-americas/ Take it for whatever you think its worth.

    Perhaps there is a lot of noise in the I/R listing due to the turbulent economy, lots of rental inventory in places with job losses (detroit) and bubbles. Still, I see P/R as a good indicator of a housing bubble.

  58. 58
    AMS says:

    RE: WifeNeedsAHouse @ 53 – I should say, however, if you are comfortable with the purchase price and loss potential, by all means buy a place. But don’t fool yourself into the thinking that a given home will always be desirable. We’ve seen that assumption fail all too often.

    I also discussed the situation where the grandparents wanted to move closer to the grandchildren, but they didn’t want to sell their home cheap. After a year of waiting, and the price going lower, they decided to sell, for much less than the year before. An observation was made that the grandchildren weren’t getting younger.

    There are upper bounds to the what someone can spend, however.

    What does one do when one’s personal desires, goals and external economic conditions collide?

  59. 59
    AMS says:

    RE: EconE @ 56 – “Wifey wants a house.

    Suzanne Researched It!”

    OMFG! That’s right on!

  60. 60

    RE: WifeNeedsAHouse @ 51

    You’re Married For Now

    King County probability says, not for long.

    Personally though, I hope you never get a divorce….they suck. I had one in 94 and will I ever re-marry again? Maybe to the right woman, boy are they rare….LOL

  61. 61
    WifeNeedsAHouse says:

    RE: anonymous @ 54 – I don’t mean that renters are more likely to be stuck in a place they hate. You are right, they are more mobile, and the very fact that they can pick up and leave, is the difference in the statement. Owners know (or should know) that they are now locked in for a period of time, and they are ok with that. Or at least I would be, if I bought.

  62. 62

    RE: softwarengineer @ 60

    I’d Check This Out Too

    IMO, a good sector of the Seattle homes are owned by:

    Older folks who bought in 20+ years ago, when prices were much lower.

    Kids who got them as inheritance.

    Old landlords who bought them 20-30 yrs ago and now rent them out to gypsy packs.

  63. 63
    NotReadyToBuy says:

    RE: HappyRenter @ 11
    http://www.city-data.com/city/Seattle-Washington.html has household income distribution for 2008 along with many other statistics.

  64. 64
    AMS says:

    RE: WifeNeedsAHouse @ 61 – The time to lock in is when prices are going to increase, not decrease.

    “Priced in forever” is not a good financial strategy. Might be satisfying to the wife.

    Let me say, I am happy that she’s your wife, not mine.

    It does make me wonder, however, if there are not parallels between the decision on the wife and the decision to purchase a home.

    I wish you many years of happiness, both in home and marriage.

  65. 65
    WifeNeedsAHouse says:

    RE: EconE @ 56 – I knew there would be some overly defensive renter coming to bash me, you win that prize. I don’t believe I said anything like what you interpreted, but of course you are free to interpret it however you want. My handle is more a joke than anything else, of course I want a house too. But I forgot, you know everything. What do you think I’m doing right now??? Gee, renting. And, I have owned before too. You may not be interested in buying. Maybe you are single. If I was single I would have no interest in buying. Maybe you aren’t single. Do you think it’s possible that different people could have different priorities? No, you know everything.

    I did say “you may hate where you live” but I didn’t say “you probably hate where you live” or “you must hate where you live”. I was just pointing out that you have to live somewhere, so unless you can move in with someone for free, you HAVE TO rent. You don’t HAVE TO buy. It seems less likely that one would buy, if they did in fact hate where they live, that’s all. Thus, people that do pony up the additional costs to own, are making a stronger statement, with their money, about the relative desirability of a certain location. My comments were not intended to imply that renters lead hollow existences that could only be dredged from the depths of hell by buying a place. My statement was about why, possibly, P/I MIGHT be more strongly correlated to desirability than R/I. But all you could see was “he’s thinking of buying, he must think he’s BETTER than me!!!!” Nice attitude.

  66. 66
    The Tim says:

    RE: WifeNeedsAHouse @ 53 – If you’re wondering what EconE @ 56 is talking about, you should check out this: Suzanne Researched This: Part 2. Don’t let that become you.

  67. 67
    AMS says:

    Let me remind WifeNeedsAHouse of my Tuesday post:

    “People like you. People like you who own. You think you’re a cut above renters. And why? Why, I ask. Because you pay your payment to a far away lender? Because you pay to fix up your place? Because you pay when the furnace goes out? Because you don’t mind taking losses when you go to sell?

    ‘It’s not just a question of money. We think differently from most renters, and our needs are different.'”

    https://seattlebubble.com/blog/2010/01/25/monday-open-thread-2010-01-25/#comment-92801

  68. 68
    WifeNeedsAHouse says:

    Thanks Tim, but yes I know what he’s talking about. Let me restate: the handle is a JOKE people!!! I have read the bubble pretty obsessively since early 2008, and I have perused the archives from time to time, even though I hardly ever post. Don’t worry that won’t be us, we are not stretching, no exotic loans, good down payment. I have family here, I have a great job (to quiet the quick-to-bash: no not MS or Boeing), I have access to all sorts of outdoor interests that I could only dream of when living in the midwest. I am not a first timer and I don’t plan on going anywhere for a while. If I lived my life like softwareengineer I suppose I should “expect” that I will get divorced in the near future, since that’s what the numbers say. That’s a pretty horrible attitude IMO and that’s the problem with numbers.

    Another point of clarification on the “hate to live here” comment, I was speaking in geographical terms, as in “you may hate it in Seattle”, not “you may hate your current lowly rental living arrangement”. Since the thread was about comparing cities. Some people are apparently so quick to lash out that they can’t even think about what a person is trying to say… he’s thinking about buying, I’ve thought about it too but haven’t yet, he must be an asshole that thinks he’s better than me. Let’s face it, unless you are an investor or a realtor, you are interested in buying too, otherwise you wouldn’t be on this site. My wife and I both want a house. EconE wants or has a porsche. I drive a corolla. Should I bash him about his choice? If I was him, yes. If I’m a reasonable person, no.

  69. 69
    anonymous says:

    RE: WifeNeedsAHouse @ 61 – Understood, and I don’t mean to pile on like some other people. I was just presenting an alternate viewpoint that it could be less likely someone would rent in a place they hate, because they wouldn’t do it for long. Because buyers are usually locked in for a period of time, they may be stuck in a place they hate, and keep prices from dropping as quickly because they can’t sell. The rental market can react much quicker if people do or don’t want to live somewhere.

    So I see your point about some buyers evaluating the city more carefully because they see the risk of getting locked in, but I also know many owners who have bought thinking they can just live there for a year or 2 then move (and it will be better financially), even in the last couple years. (just look at buyers of “starter” homes for evidence of this, though they probably aren’t an indicator of city desirability). I know even more who moved here for a job and bought immediately, because they just think buying is always better. They may have realized they hate the months of drizzle, but too bad now, they helped inflate a bubble, but aren’t helping it deflate yet, because they can’t sell and move.

    It’s true you have to live somewhere, but how you do it, by either buying or renting, is a choice. For most people at least.

    The Tim, thanks for the “Suzanne” link. I totally didn’t get that. All I remember is being sickened by that commercial when I first saw it on TV.

  70. 70
    WifeNeedsAHouse says:

    RE: anonymous @ 69 – and you make good points, I appreciate your comments. I’m just suggesting a possibility, as are you. That’s how discussion works. The bashers don’t bother me, other than the fact that they are diluting the conversation. But I don’t want to have my points twisted either. You are right that not everyone is buying for the same reasons, personally I could never move to a new place and buy right away, I would not be comfortable with that, ever. I suppose if I made enough money and had such a great job, executive level or something similar where the company is going to help out, that may work. Otherwise, no.

  71. 71
    WifeNeedsAHouse says:

    RE: AMS @ 64 – “I’m happy she’s your wife, not mine”

    You guys really DO think you know everything. AMS I’ll give you credit, you are smart, but come on…

  72. 72
    WifeNeedsAHouse says:

    RE: AMS @ 67 – I’m not sure what the point is here. The first quote portrays owners as higher than thou jerks, and the second illustrates exactly why owners want to own, instead of renting. They do think differently. (anti-bashing comment coming…) NOT BETTER OR WORSE JUST DIFFERENT PRIORITIES!!! It’s true, it’s not just a question of money. That’s where you number crunchers are misinterpreting the desire to own. Maybe some people are snobs and think they are better than renters, whatever. That isn’t me. Like I said I’m renting right now. I must think I’m better than myself.

  73. 73
    EconE says:

    RE: WifeNeedsAHouse @ 72

    Biliruben bought a house over a year ago I believe.

    We didn’t chastise him.

    Why?

    Because he didn’t come here and spout off like a wet behind the ears realtor (multiple exclamation points and all) stating all the same tired worn out sh#t that we’ve heard since 2006 when I arrived.

    Buy a house if it pleases you.

    You don’t need to come on here and convince us that you’re making the right decision, but you’re surely trying.

    Why’s that?

  74. 74
    David Losh says:

    The chart doesn’t make a lot of sense without a frame of reference. New York, at the top as an example, we have a higher income than New York? Also the rent in New York, $1013? My niece was paying over $600 for a closet sized studio in New York. Here in Seattle you can get a fairly decent place for $912.

  75. 75

    RE: David Losh @ 74
    I think the New York in the chart counts all five boroughs, all parts of New York City. if you only counted Manhattan, I’m sure that income and rents would be higher than Seattle.

  76. 76
    David Losh says:

    RE: Ira Sacharoff @ 75

    As you go down the line there are other things that could use clarification, San Jose and San Diego as other examples, Dallas and San Antonio also. It’s hard to make these generalizations. Here in Seattle we have Green Lake, and Wallingford that would defy any numbers we put up as median.

    As a rule of thumb a 20% down payment should get you to a mortgage payment close to a rental income.

  77. 77
    Jonness says:

    Why was GDP so high? For factors already mentioned and also massive government stimulus is propping up a market. How high would GDP be if the government hadn’t purchased $1.25 trillion of toxic mortgages, held interest rates at 0%, gave away tax credits for consumption, and handed out over 2 years of unemployment benefits to millions of families who would otherwise be penniless?

    How high is GDP going to be when we encounter the burden of paying back all of this borrowed money?

    IMO, stimulating GDP with borrowed money is a no-brainer circus trick. Stimulating GDP over the long-term is a much harder act. I look at it like this. You are out of a job, and your mortgage is due, and you are on the verge of bankruptcy. Fortunately, a good friend gives you $100K to spend on the condition you pay it back with interest when you get back on your feet. Hey, your personal GDP shoots up, and you exclaim, “the great recession is over.” And maybe it is. But if you don’t find a new job to pay back the loan, things are going to get worse.

    The short-term picture is meaningless.

  78. 78
    WifeNeedsAHouse says:

    RE: EconE @ 73 – I really don’t understand or think I deserve your hostility. I made some benign comments, trying to make sense out of the data. I even basically asked to be refuted. Outside of some comments from an anonymous poster, no one really has. You were the only one that seemed to interpret my comments as an attack on you personally. That’s all on you. I’m really don’t have a clue what you would consider ‘spouting’ in my comments. I didn’t ‘stoop’ to multiple exclamation points (the horror!) until you attacked me, and I mocked you. I generally am distrustful of all salespeople, RE agents included. Except Ira, he seems like a good guy. You don’t think the desirability of one location vs. another can affect or perhaps be correlated to the P/I? If so, haven’t heard why. I’m not trying to convince anyone of anything, just made some observations about the data at hand, and the general train of thought on this site, and asked for some additional commentary on such. I will be sure to check with you next time, to make sure my comments are approved. And by the way, as I said, I’m a renter, have been for a couple years, haven’t bought anything yet, and am considering it. If you aren’t considering buying, if you don’t feel there is something to it that you like, then why are you here?

    You seem to think only owners can be snobs. You’ve done a good job demonstrating that renters can do it just as well.

  79. 79
  80. 80
    EconE says:

    RE: WifeNeedsAHouse @ 78

    I didn’t attack you. I laughed at some of your comments.

    I’m still laughing.

    500 more words please.

  81. 81
    AMS says:

    RE: WifeNeedsAHouse @ 78 – Owners do think differently, er, have different priorities, right?

  82. 82
    Scotsman says:

    RE: Scotsman @ 79

    Dang, I wasn’t fast enough on the edit. Charles really has a nice summary/review of the bubble and the psychology behind it. It’s a quick read, with pictures, and well worth five minutes if only as a review of where we are in the big picture. I think the last few months of relative stability have begun to fool a lot of folks into thinking the bottom must be near. I’m a big believer in the underlying psychology of bubbles and their symmetry. That being the case, we’re only half way home. Charles says the bottom is at 1994-1997 prices, 2014. That’s without influence from a depression or re-energized recession.

    Wait, and relax. Tell Suzanne to stuff it.

  83. 83
    WifeNeedsAHouse says:

    RE: EconE @ 80 – If you or anyone else has anything to say about the relationship between desirability of an area and P/I and R/I, I’d love to hear it. Few seem to want to address it, even though it is the topic. Poor showing bubbleheads. You bubbleheads can be just like the mainstream folks you mock, just follow the leader and ridicule anyone who even mentions a contrarian thought. I thought I was a bubblehead too, but I’m not going down that road.

    One thing I’ve learned, next time I post I will make my handle something like IKnowEverythingAndYouKnowNothing, and you will all of course assume that this must be true. (hint for the slow: I am speaking in jest)

  84. 84
    The Tim says:

    By WifeNeedsAHouse @ 83:

    RE: EconE @ 80 – If you or anyone else has anything to say about the relationship between desirability of an area and P/I and R/I, I’d love to hear it. Few seem to want to address it, even though it is the topic. Poor showing bubbleheads.

    FYI, we have discussed the topic of desirability at some length here in the past: A Question Of Affordability, Poll: In the next 30 years, the desirability of the Seattle area will…

  85. 85
    AMS says:

    RE: WifeNeedsAHouse @ 83 – There is one underlying problem to this whole P/I and R/I, and that’s deflation or inflation.

    P/I can remain constant, for all cities, but if wages and prices go down at the same rate, then what difference does it make? Thus you can lock in with a high loan relative to future prices, even if the P/I remains the same.

    If you think inflation will be high, then lever up. P/I and R/I might stay the same, but the dollars used to pay back the debt are cheaper.

    You make it sound like everything is of no value if we don’t spoon feed you the information you desire. Wah!

  86. 86
    patient says:

    By EconE @ 73:

    RE: WifeNeedsAHouse @ 72

    Biliruben bought a house over a year ago I believe.

    We didn’t chastise him.

    Why?

    Because he didn’t come here and spout off like a wet behind the ears realtor (multiple exclamation points and all) stating all the same tired worn out sh#t that we’ve heard since 2006 when I arrived.

    Buy a house if it pleases you.

    You don’t need to come on here and convince us that you’re making the right decision, but you’re surely trying.

    Why’s that?

    WNAH, a renting realtor?

    “One thing I’ve learned, next time I post I will make my handle something like IKnowEverythingAndYouKnowNothing”

    Sorry but I think Greg Perry has already trademarked that handle.

  87. 87
    DrShort says:

    Sorry but I think Greg Perry has already trademarked that handle.

    I think in retrospect a lot of his posts from last spring about the market turning from cold to warm were spot on.

  88. 88
    DrShort says:

    By WifeNeedsAHouse @ 83:

    RE: EconE @ 80 – If you or anyone else has anything to say about the relationship between desirability of an area and P/I and R/I, I’d love to hear it.

    My comment on is that using the median for income and price is deeply flawed. Cities like NY and San Fran have the huge income gaps between the top 25% and bottom 25% — looking at the median income wouldn’t tell you that there’s tons of wealthy people living there. And in those areas the geography is limited so the higher income/wealth segments dictate prices.

    Other areas in the midwest have a much flatter income distribution and with lots of available land. That creates a different dynamic.

  89. 89
    WifeNeedsAHouse says:

    Tim, thanks for the link. Unfortunately there were only a handful of on topic posts before it turned into a religious argument. For the record, according to the poll only 25% thought the Seattle area would decline in desirability.

    AMS, that is a good point. I don’t know why you think me trying to keep the conversation on topic is asking for a spoon feeding. I thought that was the point, to discuss the topic.

    Patient, I’m not sure what WNAH is but it’s probably a typo so… If so, yes you guys are right I’m a realtor. The cynicism you guys exhibit is just off the chart. Yesterday some woman posts an honest question and you guys just swarmed like vultures. The only person that was friendly to her was Ira. I suppose I wasn’t here from 2005-2007 so I didn’t have to put up with the crap that you all heard then, maybe if I had I’d be that way too. But for the record and since some of you aren’t so quick to pick up on tone, no I am not a realtor. In fact, my wife often forwards me emails from the realtor who is trying to sell the place we are living in now (sell for the owner, not for us, since we are renting), when she offers her services to us since she knows we are looking too, and we always get a good laugh. Which also demonstrates one of the reasons I’d prefer to own, the situation we are in now.

    Didn’t you guys ever learn about what happens when you assume?

    Whoa, and what’s this from Dr. Short? On topic discussion? Excellent points sir, thank you for contributing.

  90. 90

    I’ll try to steer this back on topic, and thanks for the compliments, wifeneedsahouse:
    I don’t have any answers, but a few things jump out at me. As Dr. Short stated, some places have huge income gaps.Seattle itself used to be much more solidly middle class, but now there are significantly more very wealthy people. Has that made the place more desirable? I don’t know. it’s made the place a lot more expensive. Seattle has also historically been a place with a lot of single family homes for a city of it’s size. That’s also changed somewhat, and is a mixed bag. When density increases, services, stores, transit, etc go to where the people are. but mygawd, they’ve torn down lots of nice old houses to build some hideous townhomes.
    I can’t really comment on San Francisco as I’m not very familiar with it. But I am familiar with New York City. Middle class folks have been driven out of Manhattan by high prices. They’ve escaped to Brooklyn. Some people own their own apartments in Manhattan, but most people rent, and there has never been any stigma whatsoever in living in NYC and renting. Rents are insane there. I’ve got a childhood friend who rents a 2 bedroom there, which, at 2500 a month he claims is a bargain.
    So what makes a place desirable? I’m guessing by home price terms it’s strictly high paying jobs. Even though most of the people in a given city aren’t making the big money, if enough of them do I think it sets the standard for home prices. But given the price to rent ratio in Seattle, I think that it will get lower. maybe not significantly, and maybe not to a level it previously saw. And that means that either home prices will continue to drop, or rents will rise, or home prices will drop faster than rents.

  91. 91
    Mark says:

    Baltimore is that high up? Where is Washington, DC? Lived in both in the past 5 years, this chart doesn’t seem right from their point of view.

  92. 92

    RE: Mark @ 91
    Baltimore is only that high up based on the city’s population. DC’s population as of 2008 was 591,833 , a bit below Seattle. DC seems more populated. At least based on DC’s traffic, you’d think the place was huge.

  93. 93
  94. 94
    2kt says:

    As your own Mr. Losh will tell you, you can not rent median house priced at $377,000 for $912. If you want to present something that resembles real numbers, take a look price per square foot of houses (or condos) sold, then take price per square foot of rental homes or condos, multiply that by 12 and than you will see rent to sales ratio that actually resembles what is out there.

    For SFR rents are $.80 to $1 per square foot, which is between $9.60 to $12 per year. Price per square foot sold in various areas is different, but say $180 to $250/sqf for 2009. This gives you Price per Rent ratio far below 30 no matter how you look at it.

  95. 95

    RE: 2kt @ 94
    The numbers you present seem pretty accurate to me. A typical 400,000 dollar house rents for about 1600 dollars in Seattle right now.

  96. 96
    2kt says:

    RE: Ira Sacharoff @ 95

    The range is closer to $1700-$1,800 for $400,000 homes, but you can probably find one for $1,600. At any rate, the numbers presented in the post simply do not hold water.

    For NY and some other cities one needs to keep in mind rent control laws, which impact median rent negatively. But it is known that in order to rent those under rent control places you frequently have some “under the table” costs.

  97. 97
    AMS says:

    RE: 2kt @ 96 – What are we discussing? A multiplier of 20 instead of 30 or 35?

    I’ll give you 19, but I suggest that 5.25% gross rent is too little for the landlord. What’s the rate on a really good mortgage, much less all the other costs?

  98. 98
    NotASheep,RegardlessOfTheShepherd says:

    RE: 2kt @ 96 – using those numbers, which I would agree is much more accurate than $912, Seattle’s P/R drops significantly to 18.5, or from 3rd place to 10th. Of course, who knows how many of the other cities’ P/R is inaccurate as well. This seems to cast some doubt on this data.

  99. 99
    2kt says:

    You can get 7/1 ARM at 3.875% with 1.75% points and 25% down or 4.25% with 1.75% on 30% down for 7/1 ARM I/O on investment property. With I/O paper you can cash flow. Of course 6%-7% cap rate is more attractive if you can find it. You can get that on lower-priced range homes. As any landlord with experience will tell you, rents don’t vary that much between different city areas on comparable-size homes, while the property pricing can be far apart. Big yield in patchy areas can bring big headache, however. There’s no free lunch.

  100. 100
    The Tim says:

    RE: 2kt @ 94 – The numbers in the post are not comparing the cost to buy vs. the cost to rent the same exact properties, nor do they purport to. The numbers are the median sale price and the median rental price. Obviously the mix of homes being sold are different than the mix of homes being rented. That is true for every city on the list. The point is to look at this ratio over the long term and compare a city’s current ratio to what it has been long-term in the past.

  101. 101
    2kt says:

    RE: The Tim @ 100

    You can put together any set of numbers and you will see the trend. Are you comparing rent in general (condo, appartment, SFR) to buying a property? Or you comparing renting a house vs buying a house? There is a way of properly analyse the numbers and you are not doing. Compare rent per square foot with price sold per square foot. Apples to apples. Otherwise your numbers are junk.

  102. 102
    AMS says:

    RE: 2kt @ 101 – “There is a way of properly analyse the numbers and you are not doing.”

    “Otherwise your numbers are junk.”

    There is a proper way to prove “numbers are junk,” or that the analysis does not support claims made. Suggesting, “Compare rent per square foot with price sold per square foot. Apples to apples.” is probably not going to be considered a great proof by many that there is no value in the data set presented. Maybe you could prove a lack of correlation to anything? Alternatively, maybe you could provide a much better analysis?

  103. 103
    2kt says:

    The post claims that Seattle’s rent to price ratio is near 34. The real number is 20 to 25.

    I gave you price per square foot for the area, $180-$250 per sqf for sold properties. You want it sourced, sure. http://www.altosresearch.com/, help yourself.

    For rents, go to Craigslist.org. Homes rent $.80 to $1 sqf/mo (lower price range closer to $1 sqf/mo, or even more for very small homes). Appartments, $1.50 to $2 per sqf/mo (for low sqf rentals higher range, for larger, lower). Multiply those numbers by 12 for both. You can not come to Price to Rent multiple of 30 even.

    Are you interested in defending Tim’s numbers? Give me some properties with such multiples, I don’t see them.

  104. 104
    AMS says:

    RE: 2kt @ 103 – Here is the claim that I read, “The numbers in the post are not comparing the cost to buy vs. the cost to rent the same exact properties, nor do they purport to. The numbers are the median sale price and the median rental price. Obviously the mix of homes being sold are different than the mix of homes being rented. That is true for every city on the list. The point is to look at this ratio over the long term and compare a city’s current ratio to what it has been long-term in the past.”

    https://seattlebubble.com/blog/2010/01/29/top-25-cities-price-to-rent-and-price-to-income-ratios/#comment-93170

    Maybe you are looking for something other than what is presented here? That’s fine, but that does not mean a blue car has no value because you are looking for a red pickup.

  105. 105

    RE: 2kt @ 103
    I think you’re stuck on the numbers and missing the point. Tim was never saying that the price to rent ratio for the same house was 34, just that the median priced home sale price to the median priced rental was 34. Yes, your numbers seem to be right on, but all of the other cities also followed the exact same formula. Dumpy studio apartments are going to be included in figuring the median for rentals, and mansions are going to be included in the home price median. What the data shows is that Seattle’s price to rent ratio appears to be the 3rd highest in the country. Is it possible that Seattle’s standing would be far different if only single family rental homes of similar homes were used, and only in the same neighborhoods as those for sale?
    I suppose it could. But I think what the Tim was trying to convey was that the sale price to rent ratio in Seattle was higher than most cities, and I think that would remain true no matter how you figured it.

  106. 106
    2kt says:

    Garbage in, garbage out.

  107. 107
    AMS says:

    RE: 2kt @ 106 – Claim Jumper?

  108. 108
    2kt says:

    When one works with any set of numbers, in the end one should look at his results and see whether those results are validated by the marketplace. This simple exersize confirms the integrity of the data input.

    Find me one property priced at median $377K that can be rented for $912, just one, Ira.

  109. 109
    AMS says:

    RE: 2kt @ 108 – Once more: That’s not the claim being made.

  110. 110
    EconE says:

    By 2kt @ 103:

    The post claims that Seattle’s rent to price ratio is near 34. The real number is 20 to 25.

    I gave you price per square foot for the area, $180-$250 per sqf for sold properties. You want it sourced, sure. http://www.altosresearch.com/, help yourself.

    For rents, go to Craigslist.org. Homes rent $.80 to $1 sqf/mo (lower price range closer to $1 sqf/mo, or even more for very small homes). Appartments, $1.50 to $2 per sqf/mo (for low sqf rentals higher range, for larger, lower). Multiply those numbers by 12 for both. You can not come to Price to Rent multiple of 30 even.

    Are you interested in defending Tim’s numbers? Give me some properties with such multiples, I don’t see them.

    http://www.redfin.com/WA/Seattle/1000-1st-Ave-98104/unit-1901/home/12091755

    Unit 2101 rented for 5k
    Unit 1501 rented for 4k

    Don’t forget to factor in an extra $2200/mo for HOA and taxes on top of the purchase price.

    Plenty more where that came from.

  111. 111
    2kt says:

    AMS:

    When I see data input that is obviously erroneous, I don’t really care what claim is being made by it. Feel free to do otherwise.

  112. 112
    2kt says:

    EconE: you are reaching, pal.

  113. 113
    AMS says:

    RE: 2kt @ 111 – Let’s get specific: Do you doubt the median price or the median rent, or both?

    How far off do you think the median price is being misrepresented? Same question for rent.

  114. 114
    EconE says:

    RE: 2kt @ 112

    You asked for one.

    I produced.

    They’re a dime a dozen.

  115. 115
    2kt says:

    Rentals are mostly apparments, median property sold consists of more homes than condos, so you have some conflict here to start with. Median $377K house (as known in this area) rents approximately at $1,200 to $1500.

    Median rental unit renting for $912 is likely 500-650 sqf appartment. It’s been a while since I have seen a house rented for $912. I guess there may be some, but you may need to apply for a gun permit along with your rental application and I doubt it would be worth more than $200K.

  116. 116
    2kt says:

    RE: EconE @ 114

    I asked Ira to produce one house renting at $912 that sold at $377K. You produced the one with asking price price of $1.8 million. Dude?

  117. 117
    AMS says:

    RE: 2kt @ 115 – What are you saying? Are you saying The Tim misrepresented the Median Price or Median Rent?

    Just tell me, what is the median price? What is the median rent?

  118. 118
    AMS says:

    RE: 2kt @ 116 – You are getting a little loonier with each post. Let me remind you, specifically, what you requested:

    “Are you interested in defending Tim’s numbers? Give me some properties with such multiples, I don’t see them.”

    https://seattlebubble.com/blog/2010/01/29/top-25-cities-price-to-rent-and-price-to-income-ratios/#comment-93177

    Where does it say that you are only asking Ira?

  119. 119
    2kt says:

    The rent number is too low.

  120. 120
    2kt says:

    AMS, you got a mirror, dude? This is my post to Ira, below.

    108. 2kt » Jan 30, 2010 at 5:00 pm
    When one works with any set of numbers, in the end one should look at his results and see whether those results are validated by the marketplace. This simple exersize confirms the integrity of the data input.

    Find me one property priced at median $377K that can be rented for $912, just one, Ira.

  121. 121

    RE: 2kt @ 116
    We’re never going to agree here. Obviously I can’t produce a home that sold for 377,000 that rented for 912. Nothing in this data suggested, even remotely, that one could. In fact it is quite clearly stated that these are not the same properties being compared.
    2kt: Show me where the data states that the price to rent ratio for comparable homes is 34.
    You’re asking me to demonstrate to you something that is patently absurd.
    You made a very good point in clarifying that these are not the same properties being compared, and that the price to rent ratio for comparable properties is probably 20-25. It was a good point and I’m glad you made it. At the same time I don’t see the data as worthless and you do.
    You made your point, and it was a good one, and now you’re starting to come off as some kind of psycho.

  122. 122
    AMS says:

    RE: 2kt @ 120 – Did you notice that EconE was replying to your open question in message #103, not your request of Ira in #108?

  123. 123
    2kt says:

    I suppose there is some value in some random numbers that don’t make sense and don’t add up in the market place. I conceed that much. As I mentioned earlier, you can always see the trend from any consistently used set of numbers.

  124. 124
    David Losh says:

    The point is that the chart makes no sense and yet it generated over 100 comments. Not only that, it’s a heated discussion, almost hostile.

  125. 125
    Jonness says:

    By WifeNeedsAHouse @ 89:

    If so, yes you guys are right I’m a realtor. The cynicism you guys exhibit is just off the chart.

    Sell a lot of houses in 2006 – 2007 did you? That’s probably what gave you the superiority complex. I’m guessing your clients through that period probably think a lot less of you now than they did back then. I suspect the next few years will begin to make you feel similar. Only time will tell :)

  126. 126
    Jonness says:

    “But for the record and since some of you aren’t so quick to pick up on tone, no I am not a realtor.”

    Who cares? One minute you claim you are, and the next you claim you aren’t. You speak in a condescending manner and group everyone into a single stereotype. Then you wonder why you are accused of having some sort of hidden agenda?

    IMO, you are correct. You were simply stimulating discussion. I believe you did a good job of that, so your hidden agenda (stirring trouble by insulting others, many of who haven’t even posted in this thread) has been well served.

  127. 127
    voight-kampff says:

    some of yall should start IM’ing or something, this was a tedious thread, and look, now I made it even more tedious.
    ( im only half serious, I just cant sleep)

  128. 128
    WifeNeedsAHouse says:

    RE: Jonness @ 126 – I should have put a (rolls eyes) or something after the comment when I said I was a realtor. I did not intend to be condescending so if that’s how it came off I apologize. I AM NOT A REALTOR. I simply was suggesting that it’s *possible* that the bubble is near deflated, even though prices are not back to 3 times income. This has been commonly suggested as the ‘fair’ price around here, and I was suggesting that maybe prices will never drop back to 3 times income, based on this being a desirable area. I was quickly jumped on so I felt i needed to clarify/defend myself and my tone turned harsh only at that point. Sorry that took about 15 posts! lol I don’t know why everyone around here assumes everyone else has a hidden agenda (as if a bubblehead is really gonna turn around and buy just because some realtor made a post on this site), but that is what led to my wordiness in this thread, since I need to qualify every possible way my statements could be interpreted to get a contrarian point across. If no one jumps on me, and maybe just discusses the topic as I was trying to do, this thread is much shorter.

    Look at the open thread… even Tim is near buying! If that doesn’t support what I was trying to say, I don’t know what can penetrate some of the thick bubble heads. Go ahead and keep dreaming of prices at 3 times income here.

  129. 129
    Researcher says:

    Check out this article about the Bancor, which is being discussed in some financial news media as the possible new world reserve currency to replace the US dollar –

    http://www.marketoracle.co.uk/Article16870.html (bottom of page)

    This article also mentions something about hiding inflation behind the numbers, which might explain the latest GDP numbers…

  130. 130

    RE: WifeNeedsAHouse @ 128
    I’ll agree with you on a couple of points.
    It’s pretty unlikely that the median price of a Seattle area home is going to decline to 3x the median income. That doesn’t mean that prices won’t decline further, and it doesn’t mean that there aren’t nice houses for sale out there that are 3X your income ( i.e if you make 120k per year, there are nice 360k houses out there). And just because you qualify for a loan of a certain amount, it makes a lot of sense to spend much less than that amount.
    I agree that it’s also possible that the bubble is near deflated. Personally, i think we’ve got more dropping to do, that it’s not nearly as deflated as it’s going to be, but it appears to me as though we’re not going to see declines anywhere near the significance that we’ve already seen

  131. 131
    AMS says:

    RE: Ira Sacharoff @ 130 – There is the possibility that prices will go down for many years but slow enough that it does not matter to the buyer. Cars go down in value, and plenty of people buy cars within their financial means.

  132. 132

    […] visited the rent-vs-buy discussion here many times before, most recently in August, October, and January. I’m not really interested in rehashing everything that has already been said on these pages […]

  133. 133

    […] and price-to-rent ratios. In America’s priciest market, New York City, the price-to-income ratio stood at 9.5:1 and price-to-rent ratio at 39:1 as of November 2009. In Beijing, the price-to-income […]

  134. 134

    […] wouldn’t feel left out.Data is current as of August 2010. Previous posts covered data from November 2009 and July 2009. For a historical comparison, hit this 2007 Fortune table (the “The P/R […]

  135. 135

    […] Top 25 Cities: Price to Rent and Price to Income Ratios – 01/29, 134 comments, 5,548 views […]

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