Mortgage rates are near a 50-year low and foreclosures continue to flood the housing market. It was also recently disclosed that the banks are withholding thousands of these foreclosed homes, and will release them into the market throughout 2012. This is only going to delay the housing recovery even more. But I guess the good news in this: for investors (or other buyers who can qualify) there’s plenty of inventory out there, prices are going to bump along the bottom for a long time, and it’s a great time to buy, as mentioned in the following article that appeared in Kiplinger on line: http://www.kiplinger.com/magazine/archives/should-you-buy-or-rent.html.
Indianapolis is actually cited as one of 10 cities where the prices are low/stable and unlikely to drop much further. They also talk about a price/rent ratio, often called the rent-to-buy ratio. To find out whether it’s smarter to buy or rent in your area, you take the value of the home you’re looking to buy, and divide it by the annual cost of renting the same type of dwelling. If the number is below 15, it’s a good buy. Above 15, smarter to rent.
For example, on the foreclosure I bought last fall, I paid 35K and have a total of 40K in it. At 825/month rent, my ratio is 4! Definitely a buy. And even at the true market value of the home, compared to those around it (80K), the ratio is only 8.
The rent-to-buy ratio here is excellent, and we have a very strong rental market. I was able to find a fantastic renter for that home as soon as it was finished and ready to go. So we’re fortunate here. It’s a great market for buyers — if you can qualify. And there’s the catch. The banks have tightened their purse strings and are making it difficult.
They’ve gone from way too lenient to way too strict. Hopefully, the pendulum will swing back to middle ground soon . . . in the mean time, people everywhere are being forced into rentals. For us landlords, life is good . . . 🙂