Is now the time to buy?
According to the Wall Street Journal, it…may be! In a recent article, they review the five main drivers of the housing market and how they look for the future. While national in scope, the article has implications for Marin as well.
According to Moody’s Analytics, the ratio of home prices to income is now 20.9% lower than the 15-year average through 2010, and 12% lower than the 1989-2004 average. Inventory is starting to tighten in Marin, at least good inventory.
The article identifies five key factors that will govern real estate sales in the next several years. Today, we’ll cover the first two, demographics and affordability.
Demographics
Household formation declined during the economic downturn as people stayed in school or moved in with family members, a.k.a. “the boomerang generation.” Nationally, Moody’s Analytics shows the number of new households renting or owning a home dropped to 578,000 in 2008, from nearly 2 million in 2005 right before the peak of the housing boom.
However Moody’s shows household formation increased to nearly 950,000 last year and should average over 1.2 Million over the next decade. All those households will be looking to live somewhere, whether they rent or buy.
Affordability
Housing affordability, as measured by the ratio of median home prices to median household incomes, has fallen below pre-housing bubble levels in just over two-thirds of the country, according to Moody’s. By most measures, renting is still cheaper than buying in Marin, but rising rents are making lots of people question that. Marin rents increased 6% last quarter, and the price of renting a home in a good Southern or Central Marin school district has jumped dramatically the last 12 months.
We have searched for clients looking for good condition 2000 sq ft houses in the Larkspur-Corte Madera School District, and can’t find anything that big in really good condition for under $4000 a month. That’s a reasonably sized mortgage payment, at today’s rates.
The same house would probably sell for about $1,000,000. Put 25% down, get a 5.25% 30 year fixed loan, and the monthly payment with insurance and taxes is about $5500 a month. So it is still cheaper to rent out of pocket, but factor in tax deductions, equity build, and the fact you don’t have to ask the landlord to paint the bedroom, and buying starts to look pretty good!
Next, we’ll discuss employment, credit and buyer psychology, and give you real picture of what is happening in Marin County!
