Housing Example. Buying Vs. Renting in A Declining Market

Lets take this as an example, there is a house located in a bubble market that is selling for $450K. Your monthly costs associated with buying are $2700. The flipper is also offering to rent out the house for $1800 a month because there has been no interest for the house. You decide to rent from Mr. Flipper. Mr. Flipper is an inexperienced landlord, but overall it is okay because the house is relatively new and was solidly built.

After 12 months, the flipper is desperate as they can't make the mortgage payments due to an adjustable rate mortgage that just adjusted. Prices have fallen in that area about 7.5% in the past year. The flipper decides to sell the house at $416,250 or 7.5% less then what he was asking for a year ago. That would be a price reduction of $33,750.

At this point you suspect that prices will fall further but you just really want to buy the house for 416,250. [Plus you feel slightly bad for Mr. Flipper.]

How much did you save by rent and not buying for the year?

So we get 33,750 + $10800 (12 * 900 (savings on monthly housing costs - 4800 ( (12 & $400 (monthly principal payments) ) = $39,750 extra to buy for that year. Now divide this number by 52 (the number of weeks in a year) and it like saving $764 a week.