It’s not new news that the housing market is in a crash. Though house prices continue to fall in many locations, prices are still dangerously high compared to incomes and rents. Banks say a safe mortgage is a maximum of 3 times the buyer’s annual income with 20% down payment. Landlords say a safe price is a maximum of 15 times the house’s annual rent.

Yet on both coasts, those safety rules are still being violated. Buyers are still borrowing 6 times their income and putting only 3% down, and sellers are still asking 30 times annual rent, even after recent price declines.

Renting is a cash business that proves what people can really pay based on their salary, not how much they can borrow. Salaries and rents prove that prices will keep falling for a long time. Anyone who bought a “bargain” this time last year is already sitting on a very painful loss.

On the coasts, annual rents are 3% of purchase price while mortgage rates are 6%, so it costs twice as much to borrow the money as it does to borrow the house. Renters win and owners lose! Worse, total owner costs including taxes, maintenance, and insurance come to about 9% of purchase price, which is three times the cost of renting and wipes out any income tax benefit.

Buying a house is still a very bad deal in the richer neighborhoods, but it does make sense to buy in some relatively poor neighborhoods where prices have already fallen into line with salaries and rents. Check whether you should rent or buy in your own area with this NY Times calculator.

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  3. Washington DC Housing Market Bucking The Trend
  4. Why Some Areas Of The Virginia Housing Market Are Doing Better Than Others
  5. Commercial Real Estate – Following The Housing Market