[wonderwonder]

It does not as the new owner now has to have the rates high enough to cover the mortgage on the house he just purchased in a bidding war. moreover, the person that wanted to buy it and live in it is now priced out and has to pay rent and misses out on the asset appreciation.

[rafale]

To cover the mortgage, the owner has to pass it to the renter. If the renter could afford the rent, he can afford the mortgage, which mean he can probably afford the house in the first place. Sounds like the stupid people outbidding each other will lose money on the rent because renters are not outbidding each other.

[JoshuaDavid]

> If the renter could afford the rent, he can afford the mortgage

This is not necessarily true. In Los Angeles, for example, the price-to-rent ratio is about 38, i.e. if you pay $1000 / month in rent for a place, buying a comparable place would cost you about $450,000 (38 * 12 * 1000). There are a lot of people who could afford to pay $12,000 / year for housing, but could not afford the down payment on a $450,000 mortgage.

For that matter, the interest payments alone mean that renting is cheaper than buying -- 3% interest on a $450,000 loan alone is already $13,500 / year, and that's before taking into account that you also have to pay property taxes (another $3,500 / year), maintenance (probably another couple thousand a year), and principle on the mortgage (about another $9,000 / year).

In less inflated housing markets, it is generally true that the cost of rent is similar to the cost of a mortgage, but that is definitely not true in all markets.

[comeonseriously]

> ... which mean he can probably afford the house in the first place.

Not true. The people (or companies) winning the bidding war for these properties are paying cash. Normals don't have $900K cash laying around to buy a property originally listed at 550K.

[happymellon]

You completely miss that a property that I purchase to live in will probably be both interest and loan while a property purchased to rent out will be interest only.

This means that someone buying it to rent out can get a loan for significantly more than someone looking to purchase, making it much easier to outbid them.

[luigibosco]

Not sure why you refer to the renter as "he", but anyway there are many reasons people cannot afford to buy a house such as living paycheck to paycheck, damaged credit, no collateral etc.