Housing blog post

This post about price vs rental price makes basically the same point I was making, but with an interesting observation/speculation as an addendum. Following the logic that the market will drop until there is parity between the numbers, it stands to reason that you can work out exactly how much "loss" (as opposed to equity) is in each property, based on the sales price and rental value.

If you buy that as a concept, if the owner cannot make the payments for at least the next 5ish years, then someone needs to eat that loss (ie: lose that much money) in the next few years. It can either be the original owner entirely, or it could be shared with a bank (in the case of foreclosure or short sale), and/or with a knife catcher. Nothing can decrease the loss amount, it's just the owner's decision on how the total loss is distributed, based on how they act now.

An interesting perspective, I thought.

Comments

  1. CJSeptember 6, 2008 at 7:47 AM

    “They have a choice of how they want to lose it,” Mr. Murphy said of investors and condo developers. “Drip by drip or in one slap.”
    --New York Times Buyers Scarce, Many Condos Are for Rent, Jan 16, 2007

    This is the first time I read comments clearly stating this concept. The money's gone; it's just a question of when you want to lose it.

    ReplyDelete

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