Morning Report: More rent versus buy 10/21/16

Posted on October 21, 2016 by Brent Nyitray

Vital Statistics:

Last Change
S&P Futures 2124.7 -12.0
Eurostoxx Index 343.3 -1.0
Oil (WTI) 50.3 -1.3
US dollar index 88.6 0.0
10 Year Govt Bond Yield 1.74%
Current Coupon Fannie Mae TBA 103.3
Current Coupon Ginnie Mae TBA 104.2
30 Year Fixed Rate Mortgage 3.57

Stocks are lower this morning on no real news. Bonds and MBS are up.

No economic data today, however we do have some Fed-speak.

Following on yesterday’s rent-versus-buy article from Trulia, I crunched some numbers to demonstrate the relative value proposition currently. Using census data for median asking rent and median house prices, I plotted the median asking rent against the mortgage payment for a FHA loan with 3.5% down, including mortgage insurance, property taxes, homeowner’s insurance, and the tax benefit of deducting interest and property taxes for a borrower making the median income. Historically, buying has resulted in a payment higher than the median rent payment. This makes sense: your mortgage payment will be more or less fixed, while rent will increase with inflation.

The chart below plots the two numbers in absolute dollars. You can see the two lines converging which means the rent-versus-buy decision is about as far skewed towards buying than it ever has been.

rent-vs-buy-graph

In the second chart, I plotted the difference between the “median” mortgage payment and median asking rent. The range recently has been anywhere from -10% to 100%.

rent-vs-buy-percent

The other thing to keep in mind with the rent vs buy decision is that the world’s central banks are on a mission to create inflation. They will eventually succeed, and over time the asking rent is going to increase, while the mortgage payment will be largely fixed, with the exception of property taxes and perhaps homeowner’s insurance. On the other side of the coin, home price appreciation will probably maintain at least a mid-single digit rate of appreciation, which is higher than the mortgage interest rate, especially when you take into account the tax benefits.

The takeaway is that the Fed is giving the homeowner a gift in low rates, and that won’t last forever.

Filed under: Economy, Morning Report |

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20 Responses

  1. Kevin S. Willis, on October 21, 2016 at 9:16 am said:

    Should I rent or buy a FRIST!? I can’t decide.

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  3. jnc4p, on October 21, 2016 at 4:06 pm said:

    Jacobin does a nice take down of the progressive thought process vis-a-vis polling:

    “You can see this methodology at work in the studies Matthews cites to make his case. Almost all of them follow the same approach. First, they measure the attitudes expressed by Trump supporters in multiple-choice polling questions. Then they compare them to the answers of non-Trump supporters. (Usually they control for other factors as well.) Whichever issues most sharply distinguish the Trumpist group from non-Trumpists are assumed to reveal the Trump supporters’ innermost feelings, hopes, and fears — in short, their motivations. Individual motivations, it’s assumed, can be inferred from group differences.

    In summing up all the correlations and cross-tabs, Matthews is very clear on this point: “Trump’s voters [are] motivated by genuine political disagreement about race”; “these people [are] motivated by racial resentment”; “Trump’s supporters are not, in fact, motivated by economic marginalization.”

    I’ve seen most of the studies Matthews links to. As far as I can tell, none analyzed polling questions that actually asked people what was “motivating” them. Instead, they used standard polling questions like: What is your household income? Do you approve of Obama? Should taxes be cut? Should immigration be reduced? Is black poverty caused by a lack of effort? Actual motivations were never recorded: they were inferred by researchers, using math, and then imputed to Trump supporters en bloc.”

    https://www.jacobinmag.com/2016/10/trump-voters-white-working-class-vox-racism/

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    • Kevin S. Willis, on October 21, 2016 at 4:49 pm said:

      I am shocked, shocked I tell you.

      Alas, it is a cliche, but it is a true one. For most progressives, it comes down to everyone who disagrees with them being a sexist, racist, bigoted homophobe. People who support a particular non-progressive cause or candidate a whole lot, or a candidate who is particularly good at getting support from non-liberals, can only be doing so because they are even better than usual at blowing the racist, bigoted, homophobic, xenophobic dog whistles.

      Which doesn’t even get into the question of what they assume is racism or bigotry. A sense that there has been a large influx of immigrants into their hometown, or their country, or a growing number of bi-lingual options on products and services, or monolingual (non-english) options, store signage, or advertisements . . . this is automatically seen as some sort of general racism, of hating brown people because they are brown, when it has as much if not more to do with other human tendencies: resistance to change, nostalgia, generic tribalism of the same kind that drives people to be passionate over sports franchises, and so on. “Racism” is not just “racism”, “sexism” is not just sexism. A change of household roles can bother people because of nostalgia, a belief their parents had a better arrangement than they do in the present, and so on. It’s a complicated mix that isn’t just “I hate women and Mexicans!” Which is basically how progressives and Democrats characterize it. You don’t like the changes to your home town? You think your parents had a better marriage and homelife than you do, and you blame it on contemporary culture? Then straight into the basket of deplorables for you!

      And of course lots of folks on the Trump train just want more isolationism, or favoritism towards American manufacturers, to restrict the ability of companies to offshore jobs. That short of stuff. He wants to be tough on crime, but being tough on crime is automatically racist. Wanting to keep jobs in America, with a Republican says it, is automatically racist.

      These seem like complicated issue to me, with a lot of things involved, and a lot of tradeoffs. Neither isolationism or free trade is a panacea, neither open borders or mass deportation is a panacea. But the folks who claim to like nuance don’t seem to be very nuanced when it comes to discussing the concerns of the nearly 40% of Americans that seem more than willing to vote for Trump.

      My guess is it’s not going to get better. And that progressive analysis of people who hold views different from theirs will not improve.

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    • Kevin S. Willis, on October 21, 2016 at 4:51 pm said:

      And . . . “Is black poverty caused by a lack of effort”?

      Is there a corresponding “Is white poverty caused by a lack of effort?” question? Or a corresponding “Is all poverty caused by a lack of effort”? If there’s not, then that question tells the pollster nothing about the persons racial views.

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  4. jnc4p, on October 21, 2016 at 4:19 pm said:

    Another reason why high speed rail won’t live up to the hype and of course will be over budget.

    http://www.motherjones.com/kevin-drum/2016/10/california-bullet-train-takes-hit-episode-59

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    • Kevin S. Willis, on October 21, 2016 at 4:37 pm said:

      This is shocking. Shocking, I tell you. I am shocked.

      “The financial projections have to be cut in half too. Or so you’d think. But the Rail Authority says there’s no problem: from LA to San Jose, they’ll just run trains every five minutes.”

      That’ll work.

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    • Brent Nyitray, on October 21, 2016 at 5:52 pm said:

      With the cost of air travel as low as it is, high speed rail won’t be competitive..

      What is it with the Progressive left and their fetish for choo-choo trains?

      Liked by 1 person

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  5. Kevin S. Willis, on October 21, 2016 at 8:52 pm said:

    Keeping with the theme that everyone who isn’t a progressive is a racist, and Donald Trump is making more racists as we speak through racism osmosis:

    http://www.vox.com/identities/2016/10/20/13319366/donald-trump-racism-bigotry-children-bullying-muslim-mexican-black-immigrant?utm_campaign=vox&utm_content=ezraklein&utm_medium=social&utm_source=facebook

    The Vox article Ezra Klein says everybody must read.

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    • ScottC, on October 23, 2016 at 6:48 am said:

      McWing:

      Stupefying

      A great example of how the left corrupts language – and hence concepts/thinking – in pursuit of its policy goals.

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    • Kevin S. Willis, on October 24, 2016 at 8:57 am said:

      “in that case, both then-Vice President Al Gore and then-Texas Governor George W. Bush left no doubt that, once the voters and the courts had spoken, each would accept the results, and neither would plunge the nation into chaos — a chaos that, in 2016, would be even more acute with an eight-justice Supreme Court that might be unable to resolve matters decisively.”

      I don’t recall that. I recall Gore being dragged to that position kicking and screaming, and Dubya being of a kind of “well, we’ll see” mindset. Neither said that they would totally accept the outcome (ergo, why Gore kept demanding recounts, along with a compliant media).

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  8. Let the mutherfuker burn!, on October 23, 2016 at 9:56 pm said:

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Be kind, show respect, and all will be right with the world.