On the housing market

New Eckingtonian Megan McArdle, business editor for The Atlantic, frequently writes about the housing market–including its affect on her recent home purchase.

Yesterday she appeared on National Public Radio’s Marketplace to discuss the market as well as the concept of buying a house as a consumption rather than an investment decision.

A couple of days ago she wrote an article for The Atlantic‘s website, “Housing Prices Headed Further Down?“, in which she answers the question of whether or not she regrets buying a house several months ago.

Washington DC is a slightly weird market, because government employment is stable, and government activity has been increasing.  The ratio of rental prices to home prices isn’t particularly high, and has actually fallen somewhat over the last year.   Meanwhile, the population of the city has now increased for the first time in 50 years.  Our neighborhood, which has had few services, is now gaining crucial commerce like restaurants and grocery stores nearby, which should help support prices.

The ratio to which she is referring is the price of a home divided by the annual cost of renting that home.  The general rule of thumb is to buy when the ratio is below 15, rent when it exceeds 20. Using a few samples in my neighboring blocks, I would estimate that the ratio for our neighborhood is around 12.

Read the whole piece.


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