No Surprise Here
A hot list of 34 cities where it's better to rent than to own.
No surprise that Seattle/Tacoma/Bellevue made the list. What is surprising (to me) is how near the top of the list we are. Seattle is #9 on the list, behind a swatch of California, Honolulu, and Bridgeport, Conn (surprise there too).
No surprise that Seattle/Tacoma/Bellevue made the list. What is surprising (to me) is how near the top of the list we are. Seattle is #9 on the list, behind a swatch of California, Honolulu, and Bridgeport, Conn (surprise there too).
Comments
I have a problem with the basic premise of the article. All of the conclusions of the author are based on this assumption: Where an affordable home is defined as 75% of median home price.
Quick check of history for Seattle - back to 1985 - indicates that the median home price has never even approached a 15x multiple.
The long run average (before the recent run up) for Seattle is closer to 25x. And 75% of 25x =19x - which means they are overstating the potential decline by a full 25%. And I would guess for most of the cities on the list the same is true.
The idea that there is some "rule of thumb" that you'll revert to a 15x multiple is not supported by any data I have seen.
Meanwhile I was visiting a friend in Kentucky and what was amazing was that rents were not much lower than here, but home prices are a fraction of what they are here.
This article also contains clues that our market has a long way to fall. It's kinda funny. This used to be so hard to discern but now it is as obvious as knowing we are in for a nice day if the water is rough on the south side of the I-90 floating bridge in the morning.
If deejayoh is right that the longer term Seattle ratio is 25X, then your house you rent is "worth" $480k, about 9% down from where it's at today.
Not too far to go then.
BTW, FWIW, Zillow had my home at $525 last year. It is at $490 now. So we've pretty much hit bottom!!!
Somehow I doubt that.
BTW, My $285k figure was based roughly on a 7% cap rate.
Well, I meant if he was right regarding his historical statistics. He wasn't making a prediction of future ratios, just trying to correct the incorrect information. We don't have to wait to see if he's correct.
So, if DJ is right that the historical ratio is 25X annual rent, then it seems your house is now about there! BUY IT!
Anecdote: I am seeing a lot more unsold condos and townhouses for rent on Craig's List right now than I have ever seen before. That may account for the much higher spike in the average rents. Problem is, it appears the older places think they can get the same rents as the unsold new construction in the past year.
So, any formula you use in this situation seems skewed, but someone is going to use it as ammuntion to ignore median or per capita incomes for awhile at least.
It just struck me. I have lived in this house two years, and when I first rented it I was intentionally renting because I believed our housing was at a peak and a crash would make it better to buy in 2009 or roughly the time he would maybe be willing to sell. And now I'm looking at 2012.
I remember when Toshiba came out with their first 32" TV and it was ONLY $1300. It seemed like a STEAL compared to what was available before that. A couple of years later that price looked way too expensive. A $500k house going for $400k now seems like a STEAL. I don't believe it is. It will be time to buy when it drops below $300K or maybe lower, and sustains it for at least six months before it starts to SLOWLY go up. Of course, if the general economy looks to continue crashing, even the six months may not be long enough.
We're in for a paradigm shift. I still remember when houses like mine went for $40k. Paradigms can shift both ways.
My may point was that the ratio was 25x over a period most people thought was relatively affordable in terms of Seattle RE prices. Predicting values will fall below that in order to get back to affordability seems suspect.
Then I think you're probably in the minority. I've been in Seattle area for most of the last 10 years and have seen skyrocketing rents in the dot com days, stagnant rents in the dot bomb days, and ever so slightly decreasing rents around 2003/2004 when the housing market really started to take off and everyone started buying houses. Now I'm seeing rents go back up again.
I don't think rents will continue to go up at a decent clip - I think we're just getting back to where we "should" be, in terms of the overall trend of generally increasing rents.
I just checked craigslist for apartments in Capitol Hill as I lived there for a few years from 1999. It seems that average (not particularly nice) apartments that would have rented for approx 800 are now renting for about 1000. That's about 3% increase over 9 years, which is fine, it's just that those increases mostly occurred in 1999/2000 and the last couple of years so it seems like rents are "going up like crazy" when they're not.
Other than that there is an almost perfectly linear correlation.
of course, it is statistics.... take it FWIW
The real paradigm shift I have seen is using TWO incomes to base the rent on. Even for a 1 bedroom. Even studios are getting ridiculous. Then using household income for rents. Then using the vacancy rate in a particular area. Over a long period of time, the increase in rents seems realistic, going back over 20 years. However, salaries have not increased nearly as much. The rent spikes in the past two years do not reflect a rapid catch-up, in my experience.
My recent notice of a 45% increase is certainly not based upon per capita income. It's based upon someone paying too much for my triplex, and trying to shove it off on the renters because they know it's not going to appreciate for awhile. This represents at least $100 over the median in the neighboorhood, but their are plenty of other mitigating factors that the new owners naively think someone will put up with for that amount of rent, since they don't live onsite.
I can only hope something's gotta give in the next year or two, and the vacancy rate will increase pressure to bring rents down.
Not sure what source you are using, but incomes are definitely higher than $36k per year in seattle MSA based on BLS data
More like $48k, probably much higher for the city itself
http://www.bls.gov/oes/current/oes_42660.htm#b00-0000
You really can't generalize rent changes from a single observation, or even the sum all your own observations. Some people pay too much, some pay too little. But at the end of the day, people who's job it is to track rent changes provide numbers that correlate very closely with the numbers for income, which are generated by a separate set of people whose job it is just to track that data set. Not likely it is a coincidence
The relationship between rents and income has been discussed at length here before - and in all those discussions I've never seen any compelling data that makes the case for the divergence between the two over time. Mostly wishful thinking of landlords or renters - on average the market is fairly efficient
I've lived in five places since 1997 (the time of my divorce, before which I owned for 20 years in Kennydale). My rents were as follows:
1997-1998 - two bedroom apartment in lower Kennydale - $950. No covered parking
1998-2000- Four bedroom house a few blocks from Paul Allens house on Mercer Island. $1400 a month. Nice neighborhood and admittedly relatively cheap rent. Two car garage with openers. The owner sold it out from under us after just under two years.
2000 - 2001 - Bellevue, just north of Factoria and I-90. $1450. Three bedroom on medium lot. Tiny one car garage and one car carport. Nice yard - and I kept it that way.
2001-2003 - New McMansion by Lake Youngs elementary school. $1550. Four bedrooms, two car garage with openers. everything new, 200sq ft yard and neighbors that spoke primarily various Asian dialects.
2003-2006 - Renton highlands - fairly upscale neighborhood. five bedroom on a cul-de-sac. Very large lot. two car garage with openers. Three FULL bathrooms and huge kitchen. 1980's construction. $1650 - $1750.
2006 to present - Renton Highlands - moved literally one block to another cul-de-sac. Much nicer home in same neighborhood and same builder on same sized lot and professionally landscaped front and back yards with huge three tier deck. $1600. Every time we moved we checked the ads and, later, Craigslist. The reason we moved from the last place was that the new owner raised our rent and it was not justified. We paid it one month and moved.
When our current landlord offered to sell us the house, we assumed that if we didn't buy it, he would sell it out from under us so we checked craigslist. What we found was rather shocking. We thought we were getting a good deal, but it turns out our rent is just average.
Now, I wouldn't live in the Seattle city limits unless someone paid for the place for me. Rents may be going up there, but that is irrelevant to my position here. If I DID live there and rents went up, I would simply move.
After being a homeowner for 20+ years I so love renting. It is even worth the occasional move. It keeps you travelling "light" and keeps you from being tied down to your residence. I like it!
Our goal is to get out of this rat race and move to Kentucky within four years. 'Course, with the king county land law recently struck down by the supreme court, coupled with the economic collapse and subsequent easing of traffic congestion, we may stay longer.