It's the P/E stupid: Typical story from Florida about renting a luxury condo for pennies on the dollar as median prices crash $100,000 or 31% (so far)

For the next few years, renters will feel like the kings of the world:

1) Rent amazing homes for pennies on the dollar

2) Don't suffer the horrific depreciation during the housing meltdown

3) Save up massive cash, invest wisely, retire early

4) Have the flexibility to move anywhere in the world, taking full advantage of globalization

5) Enjoy falling rent prices, get treated like royalty by landlords and failed flippers desperate for renters

It was the P/E stupid. It will always be the P/E. And people who believed their cheerleader realtor and bought homes whose rental income could only pay their taxes and association fees made the biggest financial mistake of their lives.

Watch now as prices fall to the point that rental income covers carrying costs. And it's a long, long, long way back down.

Lee County’s burgeoning skyscraper condominium market is a renter’s paradise — but a landlord’s hell.

Experts say as increasing numbers of condo units pour into an already overflowing supply of residential real estate, renters can almost name their price for even the costliest luxury units.

Jim Simon, for example, recently moved into a condo in the 32-story High Point Place in downtown Fort Myers, where the owners of its 105 units typically paid as much as $600,000 for the convenient riverfront location.But Simon, a commercial real-estate broker, is paying only $1,350 a month — barely enough to cover the taxes and condo association fees.

“It’s like living in the Ritz-Carlton,” Simon said. “It’s got great amenities, it’s clean, it’s safe, it’s got a beautiful view.”With only about 20 people living there, he practically has the place to himself, and with a number of similar projects under construction around downtown, he expects the good times for renters to last for awhile.

“It wouldn’t surprise me to see people get in for a little less than I’m paying,” Simon said.

The median condo resale price maxed out in February 2006 at $353,900, and by April 2007 the price had fallen to $244,100, down 31 percent, according to Florida Association of Realtors statistics.

As prices have fallen, so have rents. In late 2006 the average rent for a two-bedroom house was $940, down from an all-time high of $1,041 a year earlier, according to rental information service RealFacts.Rents have continued to fall in recent months, as well, while the inventory of dwellings for sale stays at an all-time high of about 15,000, experts say.

As housing implodes, "new economy" myths cave in too

Good paper at Kitco - here's a couple "new economy myths" that the housing crash exposed:

House bubble claimed as valid wealth:

Rising property values and associated home equity growth is a legitimate form of wealth generation, a viable foundation for the New Economy. In promoting this concept, Greenspan resembled a hedge fund manager, not a central banker. In fact, many expert financial analysts have compared the US Economy to a grand hedge fund, since so many shared characteristics are evident and identifiable.

As the housing crisis and the mortgage debacle have begun to unfold, we know better now. The reluctance shrouded in deep denial testifies to the desperation to maintain the myth. The mortgage lender burial ground now contains some Alt-A and borderline prime lenders, which undercut claims of no contagion. Next is the damage to commercial lenders, who employed the same ditzy lending practices with 0% down payment and slim documentation methods. In fact, the debacle in progress qualifies as a potential 3-SIGMA event to trigger derivative accidents.

US Economic dependence upon housing is ok:

The main source of fuel for the US Economy was derived from housing jobs and lending institution jobs, with spending based on home equity extractions. This is a nightmare design.

Such a design succeeds until the bubble retreats, or even stalls. The historically validated concept of business investment leading the pack has been discarded in favor of a reckless dependence upon a housing and asset bubble (like stocks).

A bigger perspective reveals that the US Economy has grown dependent upon a bond bubble which extends to housing, whose size is 20 times larger than the tech & telecom bubble in 2000. Both were destined to burst.

The current bond bubble bust is still in the initial stages of unraveling in a mounting crisis. Note how the spring housing recovery (another careless mythical construct last autumn) has already been discarded, yet it served its purpose in market levitation at the time. We have another two to four years at least in the housing & mortgage collapse. Consumers will be affected as surely as night follows day. No myth of constant sunshine is likely to emerge.

Bubble Sitters and Bitter Renters go mainstream: MSM reporting It's much cheaper to rent now than buy

Finally MSM and writers start sifting through the NAR and real estate clerk bullsh*t and spin and point out that it's MUCH cheaper to rent than own. With prices plummeting and unsold inventory skyrocketing, that simple truth is now glaring, no matter what the NAR says.

Too bad more people weren't reading HP in 2005 and 2006. Bet they wish they had been now.

Renting a home now cheaper than buying

A promotional spot for the National Association of Realtors came on the radio the other day. The spot, introduced as something called ‘Newsmakers,’ was supposed to sound like a news report, with the association’s president offering real estate advice.

“This is the best time to buy,” Pat Vredevoogd Combs, the president, said cheerfully. “There’s a lot of inventory in the marketplace. Interest rates are low. It’s a wonderful tax deduction.”

By the Realtors’ way of thinking, it’s always a good time to buy. Homeownership, they argue, is a way to achieve the American dream, save on taxes and earn a solid investment return all at the same time.

That’s how it has worked out for much of the last 15 years. But in a stark reversal, it’s now clear that people who chose renting over buying in the last two years made the right move.

The costs that come with buying a home — mortgage payments, property taxes, fees to real estate agents — remain a lot higher than the costs of renting. So buyers in many places are basically betting that home prices will rise smartly in the near future.

“House prices have to fall more before housing becomes a clear buy again,” says Mark Zandi, chief economist of Moody’s Economy.com, a research company that helped conduct the analysis. “These markets aren’t as overvalued as they were a year ago or two years ago, but they’re still unfriendly. And that’s one of the reasons the market is still soft — people realise it’s not a bargain.”

Back in 2005, near the peak of the market, the chief economist of the Realtors’ association, David Lereah, published a book called ‘Are You Missing the Real Estate Boom?’ The can’t-miss argument was wrong then, and it may still be wrong today.

After hearing that radio spot, I called Combs and asked her whether she thought there was any chance that she and her fellow realtors had gone a bit too far in promoting the boom. “I absolutely disagree,” she said, still cheerful. “We help people look at the marketplace.”

Really smart guy at PIMCO sold his house and rents. And tells anyone who'll listen to keep renting during the crash

Don't listen to HP. But do listen to REAL portfolio managers and businessmen like Mark Kiesel at PIMCO (unlike The Incompetent & Corrupt David Lereah). Especially if they graduated from REAL schools like Michigan (vs. the REIC-corrupted Harvard and Wharton)

Kiesel points out that it makes no sense to own today, unless you're a masochist. Just rent (like he does). And down the road, when the blood is in the street, and the fundamentals make sense again, it'll be time to buy again. And for much, much, much lower than today's stupid prices.

One question my friends and colleagues have asked me repeatedly over the past six months is: Are you still renting? Yes!

I sold my house over a year ago and continue to rent. Back in late 2005, I became anxious about my investment in the “American Dream,” after spending a considerable amount of time and effort researching several factors that I felt would influence housing prices.

At the time, I was nervous about housing and ended up selling my house in early 2006 after owning for eight years, and then, upon closing, published For Sale, our U.S. Credit Perspectives, June 2006 publication. A year ago, I suspected housing prices were set to take a sharp turn for the worse and more “For Sale” signs were coming.

Based on the current outlook for housing, I will likely be renting for one to two more years. While many factors that influence housing prices have turned negative, I suspect we have not yet hit bottom. In fact, housing prices should head lower throughout the rest of this year and next year as well.

For renters and potential homebuyers, my advice is to still rent. The housing market has turned for the worse but the unwinding of this bubble will take more time.

Unfortunately, this is not good news for the U.S. economy, job creation or corporate profits. Nevertheless, investors who are patient and adopt a conservative investment strategy should prosper over the next few years.

The traditional 100x to 120x rent to purchase price equation is now laughable, wouldn't you say?

I've always known that real estate investors (real ones, not the fake ones these past few years) use a 100x or 120x rule of thumb when evaluating potential rental properties to purchase, so that a 10% to 12% ROI before expenses could be achieved. Even a trained monkey wouldn't buy a property with a negative ROI after expenses, unless he was a gambling monkey, vs. an investor monkey.

So, are you laughing yet? Or crying? Because we all know that rule of thumb not only got thrown out the window, the thumb got chopped off too. Places are going for 300x and 400x rental income now.

Take my old loft in Arizona. I tried to rent it (before I woke up and sold) for $1000 a month and had no takers, figured $800 would be right.

$800 x 120 = $96,000. Yet the place sold for over $300,000.

See the problem? Plus then you've got the stupid always-rising condo association fees, taxes, maintenance and not being able to rent the unit out. "Investors" were just gamblers betting on future appreciation, and now they've lost. Big time.

So do the math with your place - give us real examples. And we'll laugh and laugh and laugh and laugh, because we all know one day the 100x to 120x rule will apply again, we know rents ain't gonna be going up, so you know what that means... Watch out below!

It would be fun to go look at condos or houses with a real estate clerk, ask how much the place would rent for, then offer 100x. Oh, man, would that be fun. Especially when the place is being offered at 400x.

Look to achieve 12 per cent rental return "Some landlords are happy to receive eight, nine, or ten per cent rental return however I feel that a 12 per cent return is achievable and that is my benchmark," Mr Ahuja explained.

"I use the simple 'rule of 12' when deciding if a property is worth investing in; take the purchase price, divide by 100 thus giving the monthly rental figure that needs to be charged to obtain a 12 per cent gross yield. "For example if a property is priced at £100,000, divide by 100 giving £1,000. If the monthly rental figure (£1,000) can be achieved in the area then go for it."