patrick.net

Rents track after-tax *household wages*, yes.

College towns, West Hollywood, and the barrio are examples where low-income individuals room together to make the rent in areas where demand exceeds supply. As a college kid I lived with 3 room-mates 1988-1991, each paying $400/mo to the LL who had bought the 2B condo in 1986 for $180,000. Very good deal for him, good deal for us since we could get along and share our possessions reasonably well. (Dude sold the condo for $700,000 last year -- one smart cookie).

Thing is, this doesn't work to well for actual families, though in the 1930s it was also common to take in boarders or to convert houses into multiple flats to make housing more affordable.

Remains to be seen what happens in the US, or the market you're interested in. This rooming dynamic reduces demand substantially, but also reverses itself as supply increases over time.

toothfairy, those people have to live somewhere. Those who don't get a house they would be forced to leave and find some other town to reside.

In the long run housing supply has to meet housing demand so I think the general idea that rents track wages is still correct.

If everyone around me could afford $2,000 per month, and I could afford up to $10,000 per month, I'd only only offer $2001.

People making 100K an year do not have to live in the area where majority of population is minimum wage earners. They move to where other 100Kers live. Of cause, a few people like myself choose to stay in relatively cheap area only to save $$$. But let me tell ya that I am not competing with them at all. 100Kers can buy property up front, while minimum wage earners are nearly unable to do so. 100Ker's competing 100Kers, minimun wage earners competing within themselves.

Why would 52 people live in a town with only one house?

Nomograph says

Anyone care to guess why?

For one, you can't finance your rent at 4% for 15 or 5% for 30 right now.

Secondly, part of the purchase price includes the right, protected by all the powers of the State, to occupy the land and house forever (or rent this utility out to a tenant), as long as you pay the property tax. And thanks to Props 13 and 58 you can lock in the property tax part for yourself and your descendant(s). My retired mom is paying more on the gardener than property tax now . . .

This is a highly valuable thing to purchase, so even if it's "cheaper to rent" now, as the mortgage balance is amortized the cost of owning declines proportionally.

Of course, it's also possible to rent and put the savings in the stock market or other investments, but real estate is historically a better inflation hedge than broad-based stock funds.

But a $500K house at 4% 15 yr fixed has a carrying cost of $1900, declining to $600/mo or so in 2025 when the loan is paid off.

Total expenses (including PITI) over these 15 years pencil out to $700K or so. What will rents do over the next 15 years? If history is any guide they will have doubled to $5000/mo or so, for a total rental outgo of at least $540,000 over these 15 years (that's just $3000/mo on average).

So at the end of 15 years, which is better? Having a million-dollar house paid off with a $600/mo in property tax, or ~$300,000 in the bank and a rent about 10X the property tax?

Now, if we DON'T get wage inflation, these numbers won't be so favorable to the buy case.

Except that for the most part, rents have gone down or are flat over the past 10 years (they certainly haven't kept up with inflation).

My rent is a bit less than it was 10 years ago and I'm in a much nicer place \o/

CrazyMan says

Except that for the most part, rents have gone down or are flat over the past 10 years (they certainly haven’t kept up with inflation).
My rent is a bit less than it was 10 years ago and I’m in a much nicer place \o/

Looks like it all depends on the area.

Rents in my area have gone up 180% for last 10 years and I am in the same rat hole. It tracks with wages in general at least in my area. Oh, btw, I am in east coast. :)

Like most things in life, everything is relative. In the various places I have lived, my rent was in line with my income. Heck, most places actually verified that you earned enough to cover the rent before they would enter into a lease with you. The downside is that most of the places I have lived, it has been from paycheck to paycheck. Now, I realize that is slightly off the OP, but I do not have sufficient data for incomes as a whole in the areas I have lived in to make a blanket statement on area income vs. rental price.

Renting is slightly different than owning. Three bedroom houses are far more prevalent than three bedroom apartments, at least anywhere that I have lived. Perhaps that is because most of the apartments I have lived in have been apartment complexes, as opposed to private rentals.

What I have noticed, is that many private rentals are asking not what the market will bear, but rather what they need to subsides their mortgage, as they are "accidental" landlords.

Granted, prices may not fall to the point where medial prices are truly in line with median incomes. There has to be some premium for owning, but what infuriates me is that I am finally at the point in my life where I have separated myself from the median, at least on a statistically significant basis, but still cannot find a house that I would consider within my means that meets my needs.

Be that as it may, I concur with the others, rents track HH income, and HH income takes in to account the number of wage earners living under one roof.

EastCoastBubbleBoy says

There has to be some premium for owning, but what infuriates me is that I am finally at the point in my life where I have separated myself from the median,

banks qualify borrowers on BOTH incomes, ya know . . . hint hint

I hate throwing about numbers from my own personal financial situation, but I look at it this way. My household earns >150% more than the median HH income for the area in which we live, and would ultimately want to buy into. A 3 bdrm / 2 bth home on an acre is what I am looking for; 1800 to 2200 ft2 would be fine by me. Nothing super large, nothing horribly fancy. A nice upper middle class house is all I am looking for. Heck, based on what has been built in the past 10 years, what I am looking for may not even be considered an upper middle class home by today's standards.

In truth, I probably could afford to take that leap right now, but I would be stretched to the absolute end of what I could afford, and it would take only a small misfoutune. (Injury, unplanned epansion of the family, job loss, unexpected house repair) to put me over the edge. This is why I would prefer to rent. I want to go about this "the right way" whatever that means.

But there are days where I say to myself, if I can't do it then 1) what have I done wrong? or 2) how are others doing it. My answers are 1) I probably am too conservative at times and 2) smoke and mirrors. Part of being to the point in my life where I am fortunate enough to no longer be living paycheck to paycheck, I count my blessings in that regard, and dread the thought that I may end up back in that financial situation if I buy with my heart, rather than my head.

In all honesty, I don't expect prices in my target area to go down much more, and waiting may cost me more in the long run, but the peace of mind of not overstretching myself is something that one can't put a price on.