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The New York Times has a piece today (May 10) stating that San Diego home prices are still "bubbly." Thus, renting a home is a better option than buying, according to the Times. This is based on the rent ratio, or the sale price of a house divided by the annual cost of renting an equivalent house. If the ratio is under 15, as it is in such metro areas as Atlanta, Los Angeles, Phoenix and Las Vegas, it may be time to buy. But in San Diego, the ratio is 22 because home prices are high, according to this ratio. The ratio is 29 in Manhattan and above 30 in Silicon Valley and the East Bay. So don't buy. (On the other hand, housing prices seem to be going into a double dip and San Diego is no exception. So in my opinion you might be smart to wait to buy.) Best, Don Bauder

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Comments

Twister May 11, 2011 @ 8:58 p.m.

How about a lease/option? Are sellers hard up enough for that?

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Don Bauder May 12, 2011 @ 2:35 p.m.

Lease/options (in which a person leases for a while and has an option to purchase the home) are used frequently when real estate is slow. It's certainly slow now. Would sellers go for a lease/option? I would think a lot depends on the price to buy and the length of time before there is a right to buy. Best, Don Bauder

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Psycholizard May 12, 2011 @ 12:33 p.m.

The ratio is a useful one, !5 to 1 right now means that with a good loan, the rent will cover interest and expenses. With a down payment you should get net income. Investors should consider this ratio when buying individual properties. There are bargains right now.

Buying your own home is a different matter, it may turn out to be a good investment, but that's not the point. Buying your own home as an investment is like marrying for money, one has a cash register where the heart should be.

The loans are a different matter, right now they are cheap and subsidized, they can't get much lower. If interest rates rise a lower price might be less affordable.

Long term, I believe inflation is more likely than continued deflation, and if inflation returns, the fixed loans today will be great bargains, and property will be a great hedge.

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Don Bauder May 12, 2011 @ 2:40 p.m.

Beginning in September, Fannie, Freddie, FHA will be subsidizing mortgages less in high-price areas such as San Diego. The amount of the mortgage eligible for subsidy will drop sharply. Best, Don Bauder

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Twister May 15, 2011 @ 2:59 p.m.

Psycholizard, please note the photo just to the right of this part of your text: "Buying your own home as an investment is like marrying for money, one has a cash register where the heart should be."

This reminds me of a Biblical story (Psalm something or other?) wherein Christ throws the money-changers out of the temple. The implication was that he didn't mind them changing money, he just didn't want it done in the temple (or the bedroom, a temple of love . . . or should be).

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Don Bauder May 17, 2011 @ 6:41 a.m.

Yes, Christ threw the money changers out of the temple, we are told. Today, though, greed pervades Christianity, as well as the other major and minor religions. Best, Don Bauder

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Twister May 15, 2011 @ 3:04 p.m.

"Long term, I believe inflation is more likely than continued deflation, and if inflation returns, the fixed loans today will be great bargains, and property will be a great hedge."

By Psycholizard 12:33 p.m., May 12, 2011

Don (and others): Would you kindly address this conclusion more specifically?

Thanks.

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Don Bauder May 17, 2011 @ 6:47 a.m.

If inflation continues spiraling, a long time loan at a low fixed interest rate will look very good indeed, because interest rates will likely follow inflation upward.However, the rising interest rates should hurt housing, not help it. On some occasions, though, the fear of further rate increases stimulates housing. Basically, I suspect housing is in for a long, slow trek, with prices declining possibly for several years. The economy will be weak during this period. Best, Don Bauder

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