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rent ratio in Boston
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mpr



Joined: 06 Jun 2009
Posts: 344

PostPosted: Thu Apr 22, 2010 1:03 am GMT    Post subject: rent ratio in Boston Reply with quote

http://www.nytimes.com/interactive/2010/04/20/business/20100420-rent-ratios-table.html?ref=economy

It seems that the present rent ration for Boston is not especially
excessive - 17.6 - although I dont consider that especially favorable either.

More importantly it seems to have returned to 2000 levels.

Its also lower than Austin though slightly higher than Houston, just
for all those Texas fans on this blog. (This doesn't contradict the fact that housing is much cheaper in Texas of course.)
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Thu Apr 22, 2010 1:52 am GMT    Post subject: Reply with quote

I hope that they used the same geographical boundary for renting and buying for "Boston".

So if I get this right, what you can rent for $1,400 in Boston, you can buy for $285k?
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balor123



Joined: 08 Mar 2008
Posts: 1204

PostPosted: Thu Apr 22, 2010 3:42 am GMT    Post subject: Reply with quote

It is interesting that Austin's ratio is so high but Austin is also a little pocket of the Northeast trapped in Texas. Most Texans think it is outrageously expensive and it is still, as you point out, much cheaper than Texas. You may still spend $300k for a 3br / 2.5 ba house but it is 10 yrs old and has 2500 sq ft in a good school district. $300k in Waltham gets you a 50yo 1200sq 2br / 1.5ba duplex that was originally someone's barn and schools that, as someone once put here, no well educated person would consider sending their kids too. Unfortunately, all these metrics often don't model these factors - they are externalities which to be far are hard to model but are nonetheless there.

Anyway, few people rent in Austin and that may be part of the reason for the high ratio. Most buy after a few years not necessarily their dream home but a home which they can grow in for a long time if needed. The price of most Austin homes is also significantly less relative to income than Boston (3.5:1 vs 7:1 for many Boston towns). These factors are not reflected in this article.

I will be in Austin on Friday checking out actual houses and will show you all what I find Smile
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balor123



Joined: 08 Mar 2008
Posts: 1204

PostPosted: Thu Apr 22, 2010 3:43 am GMT    Post subject: Reply with quote

My wife finds it funny that I've posted on here now 823 times Razz
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admin
Site Admin


Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Thu Apr 22, 2010 1:24 pm GMT    Post subject: Re: rent ratio in Boston Reply with quote

mpr wrote:

It seems that the present rent ration for Boston is not especially
excessive - 17.6 - although I dont consider that especially favorable either.

More importantly it seems to have returned to 2000 levels.


Is there a table with the 2000 levels or are you eyeballing it? It looks to me (and I'm eyeballing it) like it's still above 2000, which looks like ~15. I'd also caution that the charts only show a small time span, and one dominated by bubble era years at that, so they don't give a picture of what the ratio has historically looked like (not that they claimed to do such a thing).

- admin
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Kaidran



Joined: 17 Mar 2010
Posts: 289

PostPosted: Thu Apr 22, 2010 2:30 pm GMT    Post subject: Reply with quote

I think Balor's 3.5:1 vs 7:1 house to income ratio is the key if you cannot afford to buy the average house with the average income things have got to change.

I dont give any credence to the calculator they use either, a tiny shift in how you think prices of houses and rents will change shifts the results enormously.
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GenXer



Joined: 20 Feb 2009
Posts: 703

PostPosted: Thu Apr 22, 2010 3:25 pm GMT    Post subject: Reply with quote

What balor123 said is quite right. These are averages. Quite meaningless for the immune towns, since you are not buying an 'average' house.
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balor123



Joined: 08 Mar 2008
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PostPosted: Thu Apr 22, 2010 4:17 pm GMT    Post subject: Reply with quote

It appears that the top school districts in Austin have about 1/4 - 1/3 teachers with MA degrees so in that respect Boston may be better. I know that MA now requires all teachers to have the degree but anyone know how many of them were grandfathered in? I wonder what the actual ratio is and if there's evidence that it is making a difference. I haven't found a good way to compare school districts between states. All the websites I've found seem to compare only within a given state.
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Kaidran



Joined: 17 Mar 2010
Posts: 289

PostPosted: Thu Apr 22, 2010 7:17 pm GMT    Post subject: Reply with quote

Could you expand on what you wrote GenXer? If the expensive homeowners want to sell at the current price would they not need to attract richer people? Would that not raise the average income to a more believable level?
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GenXer



Joined: 20 Feb 2009
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PostPosted: Thu Apr 22, 2010 8:19 pm GMT    Post subject: Reply with quote

First, consider the housing stock that went into calculating this ratio. You probably have everything from a $100k all the way up to $10M properties. That's a big spread. Now, the same thing is true about rents. You probably have $500 sublet all the way up to probably $10k a month (or even more). So that's a spread of 1000 for prices, and 20 for rents. Again, I'm guessing here. So, you divide averages or medians of two quantities, each varying in this fashion, and what are you going to get? Depending on the number of houses for sale/rent at the extremes, you will get something funny, just like what balor123 is saying: "So if I get this right, what you can rent for $1,400 in Boston, you can buy for $285k?" or something just as silly. There are a lot more lower priced houses and lower priced rental units that dominate the statistics, but if you take any one town, such as Newton, for example, these numbers make no sense. Same is true for certain parts of Boston. While your ratio can be 17:1 in Newton, the median price can be $700k, while median rent can be $1400, making this ratio much higher. While you can find a rental high enough that gives you a 17:1 ratio in Newton, chances are, you are probably more like 30:1 if you look at median price/rent. Some places in Boston, on the other hand are probably closer to the 17:1, but these are not the neighborhoods you'd want to rent or buy in.

So, in short, this ratio does not scale well to different neighborhoods. On average, or on 'median', this is true, but when you are trying to make a decision whether to buy or not, these numbers are quite meaningless, especially for immune towns. You'd have to rate every neighborhood separately to get an accurate reading of what a price/rent is - who cares if price of a Newton house is relative to a Lynn rental?
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GenXer



Joined: 20 Feb 2009
Posts: 703

PostPosted: Thu Apr 22, 2010 9:36 pm GMT    Post subject: Reply with quote

Kaidran wrote:
Could you expand on what you wrote GenXer? If the expensive homeowners want to sell at the current price would they not need to attract richer people? Would that not raise the average income to a more believable level?


I think this is another question altogether...there are plenty of wannabees who think they are rich, but if you dig a little, you'd find over-leveraged over-spending and over-worked two income family.

For some people, they are anchored to what they paid for the property. They don't look at the 'ratios'. Immune places have micro climates, depending on the neighborhood - some people would simply never live in some parts of Newton, regardless of how cheap the place is.
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mpr



Joined: 06 Jun 2009
Posts: 344

PostPosted: Thu Apr 22, 2010 10:58 pm GMT    Post subject: Re: rent ratio in Boston Reply with quote

admin wrote:
mpr wrote:

It seems that the present rent ration for Boston is not especially
excessive - 17.6 - although I dont consider that especially favorable either.

More importantly it seems to have returned to 2000 levels.


Is there a table with the 2000 levels or are you eyeballing it? It looks to me (and I'm eyeballing it) like it's still above 2000, which looks like ~15. I'd also caution that the charts only show a small time span, and one dominated by bubble era years at that, so they don't give a picture of what the ratio has historically looked like (not that they claimed to do such a thing).

- admin


I have to admit that what I eyeballed was the recent low compared to
the 2000 level. But I really meant the statement in rough terms.
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Kaidran



Joined: 17 Mar 2010
Posts: 289

PostPosted: Fri Apr 23, 2010 11:49 am GMT    Post subject: Reply with quote

GenXer, I'm sorry to be stupid but I think I am still missing something.

I can see what you are saying about the spread in rents and prices but I still dont understand your point about price to income. When I look at it I try to see the direction of the market going forward. There may be some holdouts that refuse to sell for less than they paid or think it is worth but I would have guessed that they will just sell once the value has been inflated away, (ie when incomes have risen). In the meantime it strikes me that the price to income ratios have to drop by sales price drop for sales to be sustainable. Or alternatively the incomes have to rise significantly fueled by some sort of growth in Boston bringing in higher paid people from outside.

Sorry to harp on about it but I want to understand where you are coming from. I'm using the price to income ratio a lot with my wife so I want to be clear on it.
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GenXer



Joined: 20 Feb 2009
Posts: 703

PostPosted: Fri Apr 23, 2010 12:21 pm GMT    Post subject: Reply with quote

Kaidran wrote:
GenXer, I'm sorry to be stupid but I think I am still missing something.

I can see what you are saying about the spread in rents and prices but I still dont understand your point about price to income. When I look at it I try to see the direction of the market going forward. There may be some holdouts that refuse to sell for less than they paid or think it is worth but I would have guessed that they will just sell once the value has been inflated away, (ie when incomes have risen). In the meantime it strikes me that the price to income ratios have to drop by sales price drop for sales to be sustainable. Or alternatively the incomes have to rise significantly fueled by some sort of growth in Boston bringing in higher paid people from outside.

Sorry to harp on about it but I want to understand where you are coming from. I'm using the price to income ratio a lot with my wife so I want to be clear on it.


Price per income is a similar beast to price per rent, but I think the meaning of that ratio (and its interpretation) is different. Both are supposed to be affordability ratios. We've already seen that price per rent is not as informative as we would want it to be - a single number won't really do much to help you decide where to buy or when to buy.
At least if you had the data, you could figure out a ratio yourself and this could provide more information than simply an average ratio for all of Boston.

You have to be even more careful with price per earnings. I think I mentioned this before several times on this forum, but the problem with price per earnings is more of a risk management nature. The question is, WHICH earnings - before or after one or both members of the household are laid off? Before or after some emergency that requires a lot of cash? Before or after $50k a year college expense for one or more kids? You see, getting a single number NOW is meaningless! You need to get a number for every year in the future, and then take the MAXIMUM ratio you get - i.e. it may be that right now your price per earnings is 3, but in the future it could become 10. The problem is that you don't know. But if your UNCERTAINTY can be as large as 100% of your estimate, you should question the estimate!

Thus, using a price per earnings is a very dangerous thing as it makes sure that you are completely oblivious to future risks. A good financial planner must know this - I see way too much 'expert' advice dished out - basically planners don't want to get between their clients and their houses. But this only points to the bigger problem - most house purchases are impulsive and emotional, despite what the buyers will claim. Just like my reserve requirements are much higher, my price/earnings will be much lower than what most people consider acceptable, simply because you have to price in the risk of future expenses, some of which are predictable (and hence can be priced into this ratio), but some are quite unpredictable (but we can still attempt to price them in by putting fudge factors). Having a decent cash reserve will help minimize the effect uncertainty will have on a price/earnings in the future as well.

if you would like to discuss this further, you are always welcome to pm me.
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Kaidran



Joined: 17 Mar 2010
Posts: 289

PostPosted: Sat Apr 24, 2010 1:45 pm GMT    Post subject: Reply with quote

Thanks, GenXer, I think PMing is disabled, at least it is for me.

I guess I still dont understand (sorry).

I was taking the view of doing things conservatively from the beginning. If I remember right Newton was 104k salary and 656k average price. If could get a mortgage of about 400k and if I have 20% down I can still only afford a 500k house. 150k less than the average. So, with my limited understanding, if you wanted to maintain the prices you would need an influx of people with maybe a 140k income. This is all assuming that there are no other expenses that you listed, which may not be the case by any means. It just looks to me that either Boston has to grow its number of upper middle class residents or the prices need to come down to what the current residents can bring in.

I think I have even been overly generous in my estimate. I would not personally borrow 4x my salary.
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