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In the long-term, you can expect the tax advantages of ownership to be priced into the housing market. This is one of the reasons (rampant speculation is anothe
by time_management 18y ago
In the long-term, you can expect the tax advantages of ownership to be priced into the housing market. This is one of the reasons (rampant speculation is another) price/rent ratios are so absurdly high. Fair value, without the tax benefits, would be a ratio of 9-12, given the costs of ownership and the illiquid nature of an owner's position. With the tax breaks, the fair value's higher, but it still doesn't make sense to buy at a P/R ratio of 20+, especially since rents are also likely to drop across much of the country.
In New York, price/rent ratios are above 40. A $2500/month apartment will sell for over a million. It only makes sense to buy at such a P/R ratio if you expect rents to skyrocket in the near future, and Manhattan rents are already starting to turn back.
- andreyf 18y agoHow do you calculate rent, there? $2500 * 40 = $100,000 ...
- papercrane 18y ago$2500 * 12 * 40 = $1,200,000
- andreyf 18y agoBut grandparent said: In New York, price/rent ratios are above 40. A $2500/month apartment will sell for over a million. And $1,200,000 > $1,000,000! The first sentence implies the second, but not vice versa... am I the only one to stumble on this? To me, it sounds like saying "I have over 20 cats. I have more than a dozen cats!".
- time_management 18y agoPrice/rent ratio almost certainly varies by neighborhood and general price level. What I meant to say, and should have said, is that price/rent ratios are mostly over 40. The specific data point that followed was one case of that. The data points I actually know about are in the $2000-3000 range. One of my friends tried to buy his $2800/month apartment and got a quote around $1.5 million.