why does property bubble make rent much lower then mortgage ?

Question

the thing in eastern europe is that rents did not increase (as income did not increase and people would not manage to rent) but property prices are up by 60% due to propery bubble (joingin EU) and easily available mortgages, a rent for studio flat is $400 and mortgage $550 plus taxes, insurance, maintenance, etc,

would u still buy a property assuming people say property prices will further increase by 30-40%, in coming years, knowing that rent will cover roughly only 50% of your mortgage and other expenses ?

Answer 1

The cost of renting in Los Angeles is up 88% the past decade according to Realfacts. Santa Monica is up 279%. Potential buyers can't buy so they rent. And owners can't sell to recoup the high costs they paid in the recent bubble, so they're renting out. But they can't make enough to make their mortgage payments.

USA Today estimates that nationwide median mortgage payments are $1,687 while rents are only $868. So now all the cheap money that sucked buyers into ARMs is putting the big squeeze on everybody, owners, renters and lenders, further driving inflation.

Robert Toll, CEO of luxury home builder Toll Brothers reports dramatically declining sales and revenue. Toll says the slowdown "will last for at least six months more, it may last for two years more. We don't know." Reminds us of the 2000-2002 recession.

When a CEO like Countrywide's Angelo Mozilo speaks, his message is far more important than all the happy talk coming out of Washington and Wall Street: "I've never seen a soft-landing in 53 years, so we have a ways to go before this levels out. I have to prepare the company for the worst that can happen." Investors better prepare too.

Our government spending is totally out of control, no fiscal restraint, no legislative oversight and Enron-style accounting that disguises how bad things are. USA Today says federal deficits reported as $318 billion would actually be $760 billion if standard corporate accounting rules were used. And if we were honest and accounted for Social Security and Medicare costs, the deficit would be $3.5 trillion, 10 times what we're led to believe. Lay and Skilling were rank amateurs.

Bottom line: All these signals tell us the tipping point was crossed, the bubble has popped and we are heading into another bear market and recession.

Answer 2

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Answer 3

The reason why property bubble lowers rent is supply an demand. More people want to buy a house, less people want to rent it.

A real state property, like other assets, has a Price-Earnings-Ratio (PER) that can be calculated. The Price is the house+mortgages+taxes, the earnings are the rent you could get in 25 years (according to the Economist).

You can compare the price-earnings-ratio of this particular property with the PERs of stocks or bonds to decide if it is overvalued or not.

It is not possible to estimate future property prices in eastern europe, there are many variables. You can not assume griwth will continue ar 30% rate.

Answer 4

That is an excellent question. I can not speak with any authority on European housing market, but here in the U S a similar situation exists.

Historically, home ownership has outpaced inflation. Also historically rents do tend to keep up with home prices. Apparently, where you live they are lagging behind somewhat. That will not last forever.

Also there is the space consideration. Generally speaking a home is more spacious than an apartment. So what you should do is consider the cost per square meter of living space to give an equivalent cost comparison.

Answer 5

once you hire, you're paying somebody else'S very own loan. Why try this? you may purchase and nevertheless be paying a similar quantity (or much less). The industry is slowing down however the bubble has no longer "burst" - a minimum of i do no longer think of so. all of us have been given grasping and pampered while properties might sell in in basic terms 2 weeks! Now that properties are on the marketplace for some months or greater, all of us think of the sky is falling. purchase - do no longer hire. it rather is a extensive waste of money. without money down mortgages now there is not any reason to no longer purchase some thing good fee. it easily relies upon on the place you reside, too. i'm in Massachusetts the place abode expenditures are ridiculous. you may purchase a 3000 sq. foot style new abode in Georgia for the fee of a 1200 sq. foot a hundred+ year old abode in some aspects of Massachusetts.

Answer 6

Pablo is on the right track, but there is something he missed. Yes, demand for ownership is higher than renting, but we can assume many buyers are going to buy property for an investment (to sell at a higher price or rent).

During bubble phases such as you are experiencing (and the U.S. also), the reason rents are lower is because if a landlord raises rents to be equal to a mortgage, tenants will say "Hey, if the mortgage is the same as rent, then why would I rent when I can buy?". The landlords will keep rents lower to entice people to keep renting and not buy. Now, as the market changes and it becomes a buyers market, rents will go up.

It's simple logic, if you are a landlord, you are going to offer rents lower than current mortgage payments to get tenants to keep renting from you rather than buying their own home.

Answer 7

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