One Response to “The Economist and sour grapes” »»

1. jad
   Comment by jad | 05/30/06 at 10:56 pm

   If you read the economist

   articles, they focus on trends in the price to rent ratio, not the ratio itself. It makes since

   that it costs more to own for the reasons you described. However the trends of the last several

   years are without precident (see charts here:

   http://neweconomist.blogs.com/new_economist/files/HSBC_frothfindingmission.pdf ). Rents in my

   building have fallen roughly 15% over the last 5 years (back bay) yet condo prices for very similar

   units have roughly doubled. I have been to many open houses and feel the unit I currently pay

   $1850 a month for is better than similar condos priced in the $600,000 range (top floor with views,

   900+ sq feet, 1 bed plus study, central heat and air, all electric and gas included in rent, etc.).

   Five years ago, rent was $2200 and prices were around $400,000 for the same units. This is the

   point of the Economist articles and others. If the reason for the boom was “they’re not making

   any more land” or the “job market is strong” you would expect rents to rise as well. While

   interest rates certainly played a part in this, I don’t think it was the main reason (why didn’t

   they effect prices in markets such as Atlanta, Dallas, N.C., Chicago, etc. as much if rates were

   the main reason?) If it was primarily interest rates, then major problems are likely ahead, since

   nearly everybody expects them to do nothing but rise in the years ahead.

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