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Renting versus Buying
| | Tuesday, November 27, 2007 @ 03:34 PM EST
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Contributed by: larthestar
larthestar Properties
Read more archived articles about Buying
There are many factors that are currently influencing the new home and resale home market. One factor that is not given enough weight is the rental market and the influence it is having on the real estate market. This could be one of the most important factors and needs to be taken into consideration.
As a Realtor in Florida, I realize that there are many factors contributing to the decrease in the number of South Florida home sales. They consist of high home prices, high property taxes and high taxes. One factor that is contributing to the collapse of the sale market that many people do not seem to consider is the influence of the South Florida rentals market. At this time, this factor is probably having the strongest effect.
Home ownership was the American dream. Since the South Florida real estate boom the lower and middle class have been driven out of the real estate market, because of the high costs associated with home ownership. Because of the uncertainty of the direction of home prices, consumers are not stepping back into the market. Prices are still unrealistic and continue to drop.
Adding to the current situation, are the people who invested at the height of the market. As I look through the MLS, the number of short sales, pre-foreclosures, new listings, and expired listings and back on the market listings are increasing at alarming rate. This is adding to the existing inventory. It has been a buyers market. The problem is that there are no buyers.
For example, today in Dade, Broward and Palm Beach County the following are the figures for the activity by category from the MLS:
New Listings
1253
Price Change Listings
496
Contingent Listings
50
Pending Listings
183
Sold Listings
195
Expired Listings
2242
Temp Off Market Listings
63
Cancelled Listings
363
Rented Listings
260
Withdrawn Listings
6
Back On Market Listings
121
To go into my explanation of the influence of the massive effect that the South Florida rentals market is having on the sales market, you have to take into account the fact that apartment complexes do not list on the MLS. Also, the number of rentals done by private owners is not included.
The most important factor is the economics of renting versus buying. Rental prices have been dropping, as inventory has been building. Consumers can rent a home at a price that they could never afford to buy. To attest to this, I would like to point out two examples. In my first one, a consumer rented a home that had been purchased for $950,000 for $2500 a month. If he had bought the home, his taxes alone would have been $20,000 a year. In the second case, a home purchased for $550,000 was rented for $2000 a month. The rental payments totaled $24000 a year. If you figure mortgage, taxes, insurance and homeowners fees, the landlord is paying approximately $50,000 a year. By renting, the renter could put $26,000 a year in the bank and would get a much better rate of return on his money, then the landlord who is losing money, since his property is depreciating and he is paying $26000 out of pocket to maintain his investment.
Appraisers are taking 1.5% a month off the value of South Florida homes every month. This is lowering comps and causing a further decline in home prices. Builders are lowering prices, causing pre-construction buyers to either walk away from the closing table or buy a home and incur an immediate loss. Landlords are renting property and incurring monthly loses. Until this downward spiral ends, the answer is to rent. As the available rental supply tightens up and prices rise and rental prices and mortgage rates come to a point where it makes sense to purchase to get the benefits of home ownership the crises will not end.
Note: Larry Lang
South Florida Property Locator
llang6@bellsouth.net
561-385-0518
South Florida Rentals and Home Sales
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