bostonbubble.com

[john p]

A friend of mine just sold his house and is moving to another house. The houses are about the same price point (moving further from the city) but his mortgage rate is going from 6.2% to 4.5%.

Given that it is difficult to refinance due to loan to value (for those who bought in the last 6 years), that whole "trade-up" or migration from city to suburb market might be a bit frozen.

I wonder if by selling (if you're not upside down after your down payment...) you can actually get access to that low mortgage rate and save a few bucks and if the low mortgage rates induce certain people to sell.

If anything, people who do refinance (say someone who bought ten years ago) and they get into a real low rate, they will have a few hundred dollars more in their pockets each month, so that will stimulate the economy somewhat.

Bottom line here is that even with unbelievably low mortgage rates, Unemployment trumps and governs the direction of a housing market (in my view).

[balor123]

I agree. That's why I'm so annoyed that they extended the benefits! I'm also not convinced that it's even stimulative, since people who are barely scraping by spend money frugally, which sends most of it overseas, not to growth industries. People who are struggling or worried also save every penny they can. After we pay down our debts, that lack of confidence will need to be overcome. Taking on lower interest rate debt increases our debt, though, so that first hurdle will be a long time coming. WW2 was great because, in addition to giving a large portion of consumers reserves to start with, it also distracted them from the Great Depression for a long time. As a result, when soldiers came back from war they'd forgotten that they needed to be stingy and the economy was moving again.

[GenXer]

So you pay 6% to buy, 6% to sell, and 6% to buy again. If the house price is say $400k, you pay $24k*3 = $72k. You can do the math. Depending on how much the loan is, and the interest difference, you may or may not win on this - it is entirely deterministic. And that does not include the money you lose if you are upside down and sell. If you are not, you can refinance without wasting money to move.

Agree on the unemployment bailout. Its a joke. People only really start looking for work when they have no money. The best is yet to come. Just be patient. Savers will win out in the end.

[john p]

From a bottom up perspective, has anyone done a rent versus buy check lately? With the 4.5% and the first time homebuyer $8k (is that still in effect?) and the tax shelter savings, I wonder what the rent verses buy looks like?

Take a $2,250 rent for a spatious 2-bed apartment, what would the equivalent buying deal be? Would it be relative to say a $300k priced condo with a 10 percent down payment, $200 condo fee after you backed out the tax shelter on the interest portion of the mortgage payment and the $8k deal?

I don't know what a $2,250 rental looks or if you can buy a decent comperable condo for $300k...

[john p]

GenXer: totally right, closing costs trump...

[GenXer]

LOL, I just had my landlord decrease rent - I'm paying $1700 for a spacious 2b/2b apartment...hands down I win

[admin]

[GenXer]

Honestly, there is no way to beat renting a 2b/2b in Newton for $1700, with heat paid for. Its impossible. I just dont get some people who buy condos. And houses for that matter. Its one thing if you have 2 older kids, I understand that. With young kids, a rental is just fine. Much more stable. No pressure. But for $2250 you can get a very nice townhouse for rent, 3 bedrooms at least. Or you can get a 3 bedroom condo. Lots of choices. And you will still have free heat. So to summarize, immune towns are too expensive to buy in. Maybe someplace where median house prices are 300k and condo prices are 200k, otherwise, renting wins.

[GenXer]

A word of advice for renters. Lots of landlords having trouble getting their places rented, even in Newton. Now is a good time to negotiate your rent downward. They can't afford to have their condo sit idle for even one month! They will be more than happy to drop that rent or install a new appliance for you.

[Boston ITer]

[john p]

I guessed that we were closer to that break even point.....

My point would have been, even when you do an analysis and you hit that inflection point or "Eureka" moment, you still have to step back and look at the overall picture, because even if your $2,250 a month rent was equal to the $300k condo with $200 condo fee, you have to consider that the $300k condo might be worth $240 if you wait?

Newton has its own orbit, and yes, you can access alot of the same things from the surrounding towns like Waltham.

How's it working out for those that live in one type of town until the kids are at school age and then move to the school districts with the top MCAS? Are you guys gathering that this is still the norm? I'm thinking that even with the closing costs, the 4.5% mortgage rates might induce some of this potential pent up demand?

[barry]

as mentioned by John, the 300k condo/200 fees is close to the 2250 rent-- but in reality what town can you buy a true condo, not a 2-5 family converted, poorly i might add, into a condo. So you can't buy that in the "immune towns" and if you extend to a framingham or quincy you can get alot of apartment for 2250.

and I live in a 3br/2 bath hardwood floor, granite counters,townhouse on a 1/3 acre across from a part in newton for $1595.... and i know for sure i cannot get anything close to that in any condo in Newton for that-- I am way ahead...

[john p]

I don't think you'll really ever see the rent versus buy be of equal value, otherwise you'd see a much, much higher ownership rate. The idea is about buying something to lock in your "rent", basically meaning that in ten years, your $1,500 a month rent in Newton might be double.

If the reports of rents dropping is true, I'd wouldn't worry about this in the short term. Does anyone have any concerns that that rent in Newton will double in ten years? Anything possible in anyone's mind to support that notion?

[balor123]

Well, at Longviewplace 2br units are running for ~$2100 right now, which includes everything except electricity. The units on 255 Winter St are pretty close and sold for $380k, for a ratio of 15.2. The 2br rents here were only ~$1700 recently and may go back there if GenXer is right (I'm renewed at $1850). Based on the ratio, I would say that the spread is actually quite normal but not especially cheap, which you would expert during a recession and a housing hangover. The estimated mortgage payment on it is $1.5k/mo. The association fee is $200/mo and heat/AC and other bills have to be worth $200 - $300/mo so it looks like it's about the same.

[Kaidran]

I've never really looked into the condo market so when I do comparisons they are never like for like. With renting being more temporary however it is much easier to rationalize a cheaper rental to boost savings temporarily before moving somewhere nicer. I think the bust has really just destroyed the idea of the starter home. With the fluctuations and risk I want to be somewhere that I could comfortably stay at least 10 year.

Back to the original point though, according to bankrate you can now get a 30 year fixed at 4.375%. I guess it just depends on where the rates are going. If they stay the same then we see continued price drops from foreclosures, unemployment, buyer shortage etc. If they go up then we see precipitous drops from lack of affordability. Either way it seems to make sense to wait, especially since the more impulsive buyers seem to be weeded out by the tax credits.

I'm not sure about rent prices but I'm seeing a lot of price drops on Redfin. Houses seem to be selling for much less than just a few months back, even in the "immune" towns.