David Bernstein is blogging again about the collapse of the housing bubble, which has led me to check into exactly how much value I can lose on a house and still break even over a given period of time.
The average price of a house in the Baton Rouge area appears to be about $220,000. I'm currently paying $510/month on rent. The shortest period in which I could end up staying here is probably six months, one hiring cycle in academia. This means that if I end up losing more than $3,060, or about 1.4%, in the difference between my buy and sell price plus whatever I ended up paying interest-only, it's cheaper to rent.
For a two-year stay, the next possibility, that dollar value goes up to $12,240, or 5.5%. For three years, it's $18,360, or 8.3%.
Housing values in some areas have dropped 4% over the last three months. This tells me that if I'm not expecting at least a two-year stay, and the market doesn't have its sharp downward plunge before the time when I need to actually buy and move, I'm going to be renting. If there's a housing market correction within the next two months, prices may stabilize or even slightly rise again even in the short term, and I may risk it. If there's a massive drop, buying for the longer term may even be profitable, but I suspect that's unlikely in this area because the houses don't seem heavily overpriced to begin with, as they are in other areas.
Condominiums may be an exception; there are apparently a large number of "investment buyers" in the condo market, and that has jacked the prices and made the market less stable.
Things I still need to find out:
- Difference between increase in home values and inflation in prospective areas over the last five years
- Whether the new condominiums close to LSU buy and sell quickly thanks to the student population
- Whether said condominiums allow pets.
