Could you explain a bit more about what you mean by “Opportunity cost”? (Opportunity cost on both the down payment, closing costs at purchase and the savings you could have with your lower rent payment.) Thankx again!

Even with rents going up, you can calculate what PITI payment is rational, or will beat renting over XYZ years. Here are your parameters:

Current rent
Rent increase average

PITI payment, after tax (count the incremental tax benefit, and add in state taxes that you can now deduct)
Maintenance estimate
Selling costs
Opportunity cost on both the down payment, closing costs at purchase and the savings you could have with your lower rent payment.

See at what point they balance out.

Assuming you can make 8% on investments (say a 10% down payment), and assuming a 3.3% average increase in home prices (and just a 2.5% increase on rent, assuming you’re a good long-term tenant and the landlord will cut you a break), 5% selling costs, 1.5% closing costs, and the typical tax brackets, along with estimated maintenace of 0.5%/year, here are some break-even points after 7 years:

Assuming a 30 year FRM at 5 5/8%
$1500/month rent=$410,000
$1800/month rent=$490,000
$2100/month rent=$575,000
$2500/month rent=$685,000

So, if you’re renting a house for $1800-$2100, which is pretty typical for nice places in the East Bay, you should look for a house ranging from $490-$575K, assuming you have the down payment, etc all together. OF course, that’s just to break even with renting over 7 years. If you want a “cushion” you have to go down from there.

http://seekingalpha.com/article/63495-real-estate-speculation-occupancy-fraud?source=feed

the article is linked but apparently needs a subscription to view in full.

In response to your comment about paying off the house in 10-15 years, the average mortgage in California turns over every 7 years. Of course, part of this is probably refinancings, but still, it tends to support your point.

What about the point that as rents climb over the years, your mortgage payment (assuming you have a 15- or 30-year fixed) remains the same? That would be the case even if you were only in the house five years, yes?

That’s rough that you had to move after only 2 years! Did you have to take a loss on the house?

Again, I do not support a “bailout” in any form because the fraud and foolish practices were endemic on all sides of the housing credit bubble. I believe there are precious few people who are in trouble now due to no fault of their own.

However, and this is a huge “however,” people are notoriously bad at predicting the future. How do you know that you’ll live in the same house for 10-15 years? Do you have a government job? Run your own (very stable) company? Never going to get married/divorced/have more/no kids?

If it takes 10-15 years for you to break even on your house, Murphy’s Law states you will be forced to move (job, etc) in less time than that. I sure know I was after I planned to live in particular city for more than a few years. Of course I was forced to move after just 2 years. N

David, you’re right, renting seems like a good decision now, especially because I believe prices in Contra Costa and Alameda counties will continue to drop throughout 2008, then remain low for four years or so.

So, do like Scott, rent a beautiful house in the neighborhood where you want to live, and you’ll be in great shape to see those “For Sale” signs on your way to BART as the prices fall so you can snap up a good deal.