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2011-02-03 23:20:58

Two Merging Trends—High Rent and Low Prices

Within the past week, the Wall Street has given REALTORS® two merging trends to build a marketing strategy on. The first article, about a week ago, was on rental rate increases. [Click here for the full article: rental rates increase] Basically, the rental market is being overrun with former owners, who now need to rent, as well as a segment that either isn’t able to buy or isn’t ready to buy. The second article is just another one predicting doom and gloom in real estate markets. Full text is here: housing continues decline. We’ve heard this, if you are a REALTOR® you’ve been living this—although as we all know, all local markets vary.

But, as a traveling real estate trainer, I hear lots of buyers continue to fence sit, fretting about whether or not the bottom has been reached in housing, or whether or not the house they buy this year may decline in value. As your local association didn’t issue you a crystal ball when you paid your dues, you don’t know anymore than they do.  But here’s my take on fence sitting buyers, and the approach we should be using.

Let’s leave price in terms of sales price out of the equation. As I’ve told buyers for years, there is a cost to living anywhere—even if it is the cost of your self-respect, because you moved back in with Mom and Dad.  Those weighing renting or buying should bring the decision down to this: “Am I willing to pay $X a month to live in this house?” or: “Am I willing to pay $X a month (subject to increases) to live in this apartment (or condo, or house) for an indefinite period of time, at the end of which I’ll have a lovely collection of receipts, but nothing else.”

During the boom, everyone began thinking about their home as an investment. Some still argue real estate remains a good investment, overall (I’m one of them). But in the face of falling prices, buyers got skittish and now many think that if the price stays flat, or goes down, it’s a bad idea to buy that house. But what if the cost of the mortgage is less than comparable rent? In many parts of the country, that’s true. I’m in North Central Pennsylvania, where the influx of gas workers has pushed our rental rates up very high, very quickly.  Our prices are still very low. Rates are still very low. Again, the question should be: “Is it worth it to you to spend this much per month to live here?”

One final example: our son attended college at Coastal Carolina University, near Myrtle Beach. The amount of on-campus housing was way too little for the growing student body. He rented space in a house for one semester, living with a kid who was—let’s not mince words here—a real pig.  If the housekeeping bothers an eighteen year old boy, it’s bad. After that semester, my spouse and I looked at each other and said: “It’s going to cost us $X a month to have this kid housed—in something—for the duration of his college career. We might as well own it, control it and get some rental income from it.” We bought a house. We got in when prices were low, did NOT sell when they went up drastically, and got out of the property below break even—financially. But it terms of what it cost us per month to keep our son in that house, it was worth it.

I’m not suggesting your buyers set out to sell a house at a loss, even a small one (as we did). I am suggesting that your buyers simply look at housing cost as one part of their budget, and ask if the benefits received for that monthly payment are equal to or greater than the benefits received in a rental.  I’m also suggesting that buyers take a longer look at their anticipated tenure in a house, as the longer they are there the more likely it is two things will happen: the market will even out, and begin appreciating again and interest rates will rise, making that same house less affordable than now.

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