All Intensive Purposes

... For those unlucky enough to have missed the stunning appreciation of house prices over the past few years, the rationale to buy now is shaky at best.

An exhaustive study of the US housing market by HSBC, "A froth-finding mission", has highlighted the appeals of renting in many parts of the US....

Even taking account of the generous tax subsidy that allows Americans to deduct their mortgage interest payments from taxable earnings, new homeowners are paying an increasingly hefty premium over renters. The annual cost of home ownership in Los Angeles, for example, is now more than double the cost of renting. LA homeowners have long been paying more than renters, says Mr Morris [an economist at HSBC], but the premium for owning is now 40 per cent more than its average over the past three decades. The figures for many of the other leading US property markets are no less alarming....

HSBC's research shows that even removing capital repayments from mortgages, new home owners in many areas will still be left paying a large premium. In San Francisco or Honolulu, annual ownership costs are 68 and 73 per cent greater even on an interest-only mortgage -- a riskier mode of borrowing that has become popular in richly valued property markets.

... Taking into account the added risks of homeownership, HSBC has calculated that prices would need to rise by 10 per cent a year in Palm Bay Florida, 8.5 per cent in Washington DC and 8.2 per cent in Denver -- far more than the 20-year averages....

The benefits of home ownership do eventually reassert themselves if you hold on to houses for long enough, even in the most highly priced markets, says Mr. Morris. Assuming house prices remain steady, you would need to hold a house in LA for 11 years before the costs equalled those of renting. In Washington DC it would take 12 years to break even.

... Even so, housing experts say the temptations of home ownership will remain irresistible. "Home ownership remains a potent symbol of success in America," says Nic Retsinas, director of the Joint Center for Housing Studies at Harvard University. "Renters tend to have lower social status in the eyes of many Americans."

// posted by t.s. @ 12:14 PM