California just slashed rooftop solar incentives. What happens next?
Gov. Gavin Newsom’s appointees voted unanimously to reduce payments to homes and businesses that go solar.
Gov. Gavin Newsom’s appointees voted unanimously to reduce payments to homes and businesses that go solar.
I’ve been a homeowner for 24 of the last 25 years. Based on this, you might think I’m an advocate of homeownership over renting. That’s not the case. The older I get, the more I appreciate there’s no correct answer in the perennial “is it better to rent or buy?” debate. Sometimes buying a home makes the most sense. Sometimes renting is the smarter choice.
In an editorial in the June 2007 issue of Kiplinger’s Personal Finance, Knight Kiplinger wrote, “It often costs less to rent. The annual cost of owning a property, be it a house or a condo, is usually greater than the cost of renting, after taxes.” I agree.
Today, let’s look at a handful of ways to evaluate the rent versus buy decision from a financial perspective.
One way to tell whether it’s better to rent or buy is by calculating the price-to-rent ratio (or P/R ratio). This number gives you a rough idea whether homes in your area are fairly priced. Figuring a P/R ratio is simple. All you need to do is:
For example, say you find a $200,000 house for sale in a nice neighborhood. You find a similar house on the next block for rent for $1,000 per month (which works out to $12,000 per year). Dividing $200,000 by $12,000, you get a P/R ratio of 16.7. But what does this number mean?
Writing in The New York Times, David Leonhardt says, “A rent ratio above 20 means that the monthly costs of ownership well exceed the cost of renting.” That’s a little opaque, I know. Leonhardt is saying that the higher the P/R ratio, the more it makes sense to rent â and the less it makes sense to buy.
The normal P/R ratio range nationwide is between 10 and 14 (meaning it would cost between $1200 and $1600 to rent a $200,000 house). During the 1990s, just before the housing bubble, the national P/R ratio was usually between 14 and 15 (about $1100 to $1200 to rent a $200,000 house). During last decade’s housing bubble, national price-to-rent ratios rose to 22.73 (in 2005) then to 24.50 (in 2007) before the market collapsed. As most folks were rushing to buy homes, the numbers said they ought to be renting.
Based on this info, I’d argue that:
Nationwide numbers don’t tell the full story, of course. While the national price-to-rent ratio might be around 20, the actual numbers in your city could be very different.
Strong Auction Helps, But Not Enough to Get Rates Back Into The Recent Range Without much economic data this week, the focus has been on Fed speakers and the Treasury auction cycle (in addition to other bond market supply via corporate bonds). There was a boatload of Fed speakers on tap today although the first one (NY Fed Pres Williams) was probably the headliner. Bonds seemed to pay at least some negative attention to his blunt reminders on the long road ahead for tight Fed policy. Still he didn’t define the trading day. Nothing really deserves that distinction, but if forced to pick, the strong 10yr auction caused the biggest reaction. Friendly though it was, it wasn’t enough for yields to move convincingly back into the 3.42-3.62 range. Econ Data / Events No significant econ data Market Movement Recap 09:00 AM Slightly stronger overnight and very flat. 10yr down 2bps at 3.658 and MBS up 3 ticks (.09). 10:18 AM moving into negative territory on Fed comments. More details in the alert HERE. MBS down 2 ticks (0.06) on the day but only about an eighth from the highs. 10yr yields are up .7bps at 3.687 01:07 PM Bonds were already finding their footing, but are making additional gains after an exceptionally strong 10yr auction. 10s down 4.5bps at 3.634 and MBS up an eighth (and rising). 03:50 PM After giving up some of the post-auction gains, yields are once again near their best levels of the day with 10s down 4.7bps at 3.632. MBS are underperforming, up only an eighth of a point.
During the week that mortgage rates very briefly touched down into the 5% range, mortgage applications increased 7.4%, according to the MBA.
Before we begin, I should probably admit that the Mustache family absolutely did not need a new car. Or even a new used car. In fact, we didn’t even need the two older used cars that we have been keeping around for the last five years, because our local life has blossomed so nicely in this small […]
JSX is a semi-private airline that allows in-cabin pets to fly free if they fit in a carrier. It’s sometimes cheaper than traditional airlines with pet fees.
The No Sweat Investing method can help you to reach your financial goals without all of the stress of picking individual stocks. Here’s how it works.
The post Use The No Sweat Investing Method To Meet Your Financial Goals appeared first on Bible Money Matters and was written by Joseph Hogue, CFA. Copyright © Bible Money Matters – please visit biblemoneymatters.com for more great content.
Luxury housing planned along streetcar route sparks fears of displacement in Santa Ana’s Latino neighborhoods. Others welcome transit-oriented development.