Real Estate Data for the Rest of Us

Blue Markets Face Bigger Housing Challenges Than Red Markets

Jed Kolko, Chief Economist
October 27, 2014

The housing crisis hurt Democratic- and Republican-leaning markets similarly, but today blue markets have lower affordability, lower homeownership, and greater income inequality.

As Election Day 2014 approaches, we see sharp differences in local housing markets depending on whether they are blue or red. As the political urgency of the housing crisis fades, longer-term issues like declining affordability, low homeownership, and rising inequality are taking center stage. And these issues play out differently in Democratic- and Republican-leaning metros.

To show this, Trulia categorized the 100 largest metros as red or blue depending on their 2012 presidential vote. In 32 metros—the red markets—the Republican candidate, Mitt Romney, got more votes than the Democrat, President Obama. These include places like HoustonCincinnati, and Salt Lake City. In 40 light-blue markets, including St. LouisAustin, and Buffalo, Obama beat Romney by less than 20 percentage points. And in 28 dark-blue markets, including Los AngelesNew York, and San Francisco, Obama’s margin exceeded 20 points.

When we looked at housing trends in these metros, we found that the housing crisis and recovery affected red and blue markets similarly. But today’s pressing housing issues are more severe in blue markets.

The Housing Crisis Hit Both Red and Blue America

When the housing bubble of the mid-2000s burst, both red and blue markets felt the pain. The markets with the most severe housing busts included dark-blue metros like Detroit and Oakland as well as red markets like Bakersfield and Cape Coral – Fort Myers, FL. The peak-to-trough price decline averaged 16% in red markets, 26% in light-blue markets, and 25% in dark-blue markets. But the relationship between price declines and redness or blueness was not statistically significant. (See note.)

Nor does the recent recovery show any clear bias toward red or blue markets. In September 2014, home prices were up 7.0% year-over-year in red markets, 6.2% in light-blue markets, and 6.3% in dark-blue markets. The markets with the largest price increases included red metros like Palm Bay-Melbourne-Titusville, FL, and Birmingham, AL, and dark-blue metros like Miami and Toledo, OH. The relationship between year-over-year price increases and 2012 voting patterns is not statistically significant. Another recovery measure, the share of homes in foreclosure, also doesn’t show a statistically significant correlation with 2012 voting patterns.

Key Housing Data in the Reddest Metros
U.S. Metro 2012 Vote Margin: Obama vs. Romney Price Decline in Housing Bust, Peak-to-Trough Year-Over-Year Price Change, Sept. 2014 Median Asking Price Per Square Foot, $
1 Knoxville, TN -34% -8% 2.1% $98
2 Tulsa, OK -32% -4% 7.3% $90
3 Greenville, SC -30% -8% 5.9% $92
4 Oklahoma City, OK -27% -3% 4.0% $98
5 Fort Worth, TX -23% -6% 6.4% $94
6 Salt Lake City, UT -21% -22% 4.7% $129
7 Colorado Springs, CO -21% -12% 4.0% $107
8 Birmingham, AL -20% -13% 11.5% $96
9 Jacksonville, FL -19% -38% 7.0% $109
10 Bakersfield, CA -17% -52% 8.2% $126

Note: among 100 largest U.S. metros. Reddest metros are those with highest negative margin for Obama vs. Romney in 2012. See blogpost note for data sources. Data for all 100 metros available here.

Key Housing Data in the Bluest Metros
U.S. Metro 2012 Vote Margin: Obama vs. Romney Price Decline in Housing Bust, Peak-to-Trough Year-Over-Year Price Change, Sept. 2014 Median Asking Price Per Square Foot, $
1 San Francisco, CA 58% -23% 9.9% $613
2 Oakland, CA 50% -39% 11.9% $342
3 New York, NY-NJ 49% -18% 4.3% $320
4 Detroit, MI 47% -40% 11.4% $75
5 San Jose, CA 42% -26% 8.6% $430
6 Los Angeles, CA 42% -35% 6.9% $334
7 Honolulu, HI 39% -11% 4.1% $439
8 Washington, DC-VA-MD-WV 37% -25% 3.2% $177
9 Fort Lauderdale, FL 35% -48% 6.9% $143
10 Seattle, WA 35% -26% 8.9% $197
Note: among 100 largest U.S. metros. Bluest metros are those with highest positive margin for Obama vs. Romney in 2012. See blogpost note for data sources. Data for all 100 metros available here.



Affordability Is a Bigger Problem for Blue Markets

Things look fundamentally different when we compare red and blue markets in terms of affordability and related measures. The tables above show that none of the 10 reddest markets had a median asking price per square foot above $130 in Sept. 2014. But nine of the 10 bluest markets did. Looking across all 100 largest metros, the correlation between price-per-square-foot and 2012 vote margin was positive, high (0.63), and statistically significant. In fact, the only expensive red market was Orange County, CA, at $363 per square foot. There was a huge drop-off to the next-most-expensive red market—North Port-Bradenton-Sarasota, FL, at $150 per square foot.

When we plot local market home price per-square-foot and the 2012 presidential vote, we see that most of the red metros are clustered in the lower left-hand corner of the figure, where prices were lowest.


Strikingly, housing costs nearly twice as much in dark-blue markets ($227 per square foot) than in red markets ($119).


Sure, households in blue markets tend to have higher incomes. But those higher incomes are not enough to offset higher home prices. Our middle-class affordability measure, which reflects the share of homes for sale within reach of a median-income household, is significantly lower in bluer markets. Furthermore, blue markets have lower homeownership and greater income inequality than red markets. As with affordability, the relationships between homeownership and inequality on one hand and 2012 voting patterns on the other hand are statistically significant.

What does all this mean? The point is not that Democrats cause expensive housing, lower homeownership, or greater inequality. Determining whether and how the political views of voters or their elected officials affect local housing markets is the stuff of scholarly research, not short blogposts. But because blue markets are less affordable, have lower homeownership, and have greater income inequality, political leaders in Democratic-leaning and Republican-leaning metros may push for different policies.

Furthermore, these local differences in home prices mean that some national housing policies favor red markets and others blue markets. For instance, the current system of conforming loan limits benefits red markets more because homes in those markets are likelier to fall within local loan limits. But the mortgage interest deduction benefits blue markets more, thanks to higher home prices and more residents in higher tax brackets. Such differences could make it harder to reform these long-standing policies. In short, the differences between blue and red local housing markets may add to the challenge of reaching agreement on national housing policies.

Note: Metro-level 2012 Presidential election data are aggregated from county-level data in the Atlas of U.S. Presidential Elections. Peak-to-trough price declines are calculated from the Federal Housing Finance Agency House Price Index. Year-over-year price changes and median asking prices per square foot are from the Trulia Price Monitor. Correlations mentioned in this post are metro-level, weighted by number of households in the metro, and statistically significant if p<.05. The correlation of price per square foot and vote margin is calculated using the natural log of price per square foot.



Buying Cheaper Than Renting, But Some Mortgages Make It a Closer Call

Jed Kolko, Chief Economist
October 15, 2014

Nationally, buying is 38% cheaper than renting with a traditional 20% down, 30-year mortgage. Buying is an even better deal with a 15-year mortgage, but not as favorable with less money down.

Homeownership remains cheaper than renting nationally and in all of the 100 largest metro areas. In fact, buying is 38% cheaper than renting now, compared with 35% cheaper than renting one year ago. Why is the gap widening? Two reasons. First, in the past year, the 30-year fixed-rate mortgage rate has fallen from 4.8% to 4.3%. Second, rents have risen faster than prices, excluding foreclosures. Together, these trends have made buying even more affordable versus renting than it was last year.

Our Rent Versus Buy model assumes a traditional 30-year fixed rate mortgage with a 20% down payment. But there may be good reasons for financing a home purchase other ways. Consumers tell us that the main obstacle to homeownership is the down payment. For those would-be homeowners – especially first-timers without savings or equity from another home – a low-down-payment mortgage might be the only option. For others, paying all cash might give them the deciding advantage over other bidders on a house. This edition of Trulia’s Rent Versus Buy report focuses on how different types of mortgages affect the math of buying versus renting.

Our method for calculating and comparing the total costs of buying and renting follows these steps:

  1. Calculate the average rent and for-sale price for an identical set of properties. For this report, we looked at all the homes listed on Trulia for sale or rent from July, August, and September 2014. We estimate prices and rents for similar homes in the same neighborhood to get a direct apples-to-apples comparison. We are NOT just comparing the average rent and price of homes on the market. That would be misleading because rental and for-sale properties are very different. Most importantly, for-sale homes are on average about 50% bigger than rentals.
  2. Calculate the initial total monthly costs of owning and renting, including mortgage payments, maintenance, insurance, and taxes.
  3. Calculate the future total monthly costs of owning and renting, taking into account price and rent appreciation as well as projected inflation.
  4. Factor in one-time costs and proceeds, like closing costs, down payment, sales proceeds, and security deposits.
  5. Calculate net present value to account for the opportunity cost of using money to buy a house instead of investing it. Net present value is the value in today’s dollars of a future stream of payments and proceeds, taking into account expected interest rates.

To compare the costs of owning and renting, we start by assuming that buyers get a 30-year fixed-rate mortgage at a 4.3% rate and make a 20% down payment. We then compare this mortgage with several other financing options, including all cash and an FHA loan. We assume people itemize their federal tax deductions and are in the 25% tax bracket. We also assume they stay in their home for seven years. In short, our Rent Versus Buy model takes into account all costs and proceeds from buying or renting over an entire seven-year period, including opportunity cost.

The interactive Rent Versus Buy map shows how the math changes under alternative assumptions for the mortgage rate, the income tax bracket for tax deductions, and the number of years that one stays in the home. What’s more, Trulia’s Rent Versus Buy Calculator lets you compare renting and buying costs based on whatever assumptions, prices, rents, and scenarios you want to look at. It uses the same math that powers our interactive map and this report. Our detailed methodological statement explains it fully.

Buying Versus Renting: Tougher Call in California and New York, Easier Choice in Midwest and South

Buying is 38% cheaper than renting nationwide, and buying is cheaper than renting in all of the 100 largest metros. In fact, buying is at least 20% cheaper than renting under our baseline assumptions in all of the 100 largest U.S. metros except Honolulu.

The gap in the costs between renting and buying differs across metros largely because each market has its own typical prices and rents. In addition, property taxes and home-price appreciation differ locally. Taking all these factors into account, buying ranges from 17% cheaper than renting in Honolulu to 63% cheaper than renting in Detroit. Generally, buying is a closer call relative to renting in California and New York, while the gap is widest in the Midwest and South.

blogpost map no 1


Even in the tougher-call markets, buying probably won’t become more expensive than renting soon. Home price increases are slowing. What’s more, at current prices and rents, mortgage rates would have to rise above 6% to make renting cheaper than buying in Honolulu. They’d have to climb near 7% for Orange County and San Jose to tip in favor of renting. The 30-year fixed-rate mortgage hasn’t been 6.1% since 2008.

Nationally, buying is a bit more affordable compared with renting now (38% cheaper) than a year ago (35% cheaper), thanks to the decline in mortgage rates. But in parts of the West where rents have risen faster than for-sale prices, the cost gap between buying and renting has widened significantly. In our summer 2013 report, buying in San Jose and San Francisco was less than 10% cheaper than renting, compared with more than 25% cheaper now.

Where Buying a Home is a Tougher Call
# U.S. Metro Cost of Buying vs. Renting (%),Q3 2014 Cost of Buying vs. Renting (%),Summer 2013 Mortgage Rate Tipping Point When Renting Becomes Cheaper Than Buying, Q3 2014
1 Honolulu, HI -17% -10% 6.1%
2 Orange County, CA -22% -20% 6.8%
3 San Jose, CA -23% -4% 6.8%
4 New York, NY-NJ -24% -21% 7.3%
5 San Francisco, CA -25% -9% 7.0%
6 Los Angeles, CA -26% -21% 7.3%
7 San Diego, CA -26% -21% 7.5%
8 Sacramento, CA -26% -26% 7.7%
9 Ventura County, CA -28% -22% 7.5%
10 Austin, TX -30% -30% 8.9%


Where Buying a Home is an Easier Choice
# U.S. Metro Cost of Buying vs. Renting (%),Q3 2014 Cost of Buying vs. Renting (%),Summer 2013 Mortgage Rate Tipping Point When Renting Becomes Cheaper Than Buying, Q3 2014
1 Detroit, MI -63% -65% 29.1%
2 Gary, IN -61% -58% 21.3%
3 Akron, OH -58% -51% 21.2%
4 Toledo, OH -58% -51% 21.0%
5 Cleveland, OH -58% -54% 21.4%
6 Kansas City, MO-KS -55% -53% 17.9%
7 Memphis, TN-MS-AR -54% -55% 17.8%
8 Grand Rapids, MI -54% -52% 18.0%
9 New Orleans, LA -54% -51% 15.2%
10 Birmingham, AL -54% -50% 15.7%
Note: Negative numbers mean that buying costs less than renting. For example, buying a home in Detroit is 63% cheaper than renting in 2014. Trulia’s Rent Versus Buy calculation assumes a 4.3% 30-year fixed-rate mortgage with a 20% down payment, itemizing tax deductions at the 25% bracket, and staying seven years in the home. Click here to download the full Rent Versus Buy cost considerations for the 100 largest U.S. metros: (PDF) or (Excel).

The Pros and Cons of Different Types of Mortgages

All the Rent Versus Buy calculations shown above assume a traditional 30-year fixed-rate loan with a 20% down payment. But many people can’t swing 20% down. Others might prefer to pay all cash or build equity faster. For those reasons, we examine other financing options. Let’s look at how different options play out for a $250,000 home that the owner sells after seven years. To keep things simple, let’s start out ignoring closing costs, home price appreciation, tax benefits, and many other things we do account for when we add these scenarios to our full Rent Versus Buy model, below.

  1. traditional 20% down, 30-year fixed-rate loan on a $250,000 home would carry a $990 monthly mortgage payment, including principal and interest. After seven years, the unpaid loan balance is $173,291, leaving equity of $76,709.
  2. All cash is just what it sounds like. You pay $250,000 upfront and that’s all equity at the end.
  3. For a 15-year fixed-rate loan, you still put 20% down. The average mortgage rate on a 15-year fixed-rate loan is most of a full point below that of the 30-year fixed rate. But the shorter term means a higher monthly payment of $1,428. The payoff is that the 15-year loan builds equity much faster: $130,507 after seven years.
  4. 10% down payment loan with private mortgage insurance requires less money upfront. But the higher initial loan balance means a larger monthly payment plus a mortgage insurance premium of $133 per month. Furthermore, the lower down payment and higher loan balance leave equity of only $55,048 after seven years.
  5. A 3.5% Federal Housing Administration (FHA) loan calls for a down payment of only $8,750 but requires upfront and ongoing mortgage insurance premiums. The higher initial loan balance means equity of just $38,748 after seven years. That’s about half what you’d have with a traditional 20% down, 30-year loan.
Understanding the Financing Options
For a $250,000 home Traditional 20% down, 30-year fixed All cash 15-year fixed, 20% down 10% down, private mortgage insurance 3.5% down FHA
Down payment $50,000 $250,000 $50,000 $25,000 $8,750
Monthly payment (incl. mortgage insurance) $990 - $1,428 $1,247 $1,441
Equity at 7 years (no appreciation) $76,709 $250,000 $130,507 $55,048 $38,748
Note: Monthly payment is principal, interest, and mortgage insurance premium. Mortgage rates for the traditional 20% down 30-year fixed (4.30%), 15-year fixed (3.48%), and FHA (4.00%) loans are from the Mortgage Bankers Association for the week ending October 3. We use the same rate for a 10% down payment loan as the traditional 20% down payment rate, based on current rate quotes. Monthly payment includes mortgage insurance calculated for the first year of the loan. For FHA loans, the insurance premium falls over time but remains on the loan; the FHA upfront premium is rolled into the loan balance. For the 10% down loan, we assume insurance gets taken off when equity reaches 20%. All dollar amounts are rounded to the nearest dollar.

How do you decide whether buying still beats renting with each of these financing options? The math gets complicated. For starters, the benefits of each option depend on how you would invest your money if you weren’t buying a home – that’s the “opportunity cost.” In addition, other factors, such as whether you itemize your tax deductions, also affect the relative benefits. Our Rent Versus Buy model factors all this in. So let’s see whether buying beats renting in all cases.

How to Make Buying an Even Better Deal – Or a Bad Idea

Remember that buying is 38% cheaper than renting nationally under our baseline model of a 20% down payment 30-year loan, tax deductions at 25%, and staying seven years. Let’s start by comparing the five financing options. In all scenarios, buying beats renting. The gap is widest for the 15-year loan, where it’s 43% cheaper to buy. It’s narrowest for the 3.5% FHA loan, where buying is 25% cheaper.

mortgage type graphic


The 15-year loan ends up costing least versus renting thanks to faster equity build-up and more of the mortgage payment going to principal rather than interest. Surprisingly, all-cash is a worse deal than a traditional 20% down, 30-year mortgage, although that hinges on our assumption about what you could earn if you didn’t tie up your money in an all-cash payment. (Geeks: we’re assuming a 3.5% nominal discount rate.) In addition, if you pay all cash, you lose the tax benefit of deducting mortgage interest. If you assume tax deductions aren’t itemized, there’s no tax benefit of getting a mortgage, which makes all-cash a better deal than a traditional 20% down, 30-year fixed rate mortgage.

The biggest shift is with the 3.5% down FHA loan, which makes buying only 25% cheaper than renting. In one of the 100 largest metros, Honolulu, buying with a 3.5% FHA loan is actually more expensive than renting. And, with this loan, buying beats renting only by 10% or less in San FranciscoNew YorkLos Angeles, and several other California metros.

Going further, it’s not hard to come up with realistic scenarios where buying costs more than renting in many local markets. For a millennial with little savings and no Bank of Mom and Dad, an FHA loan might be the only option. If our hypothetical twentysomething is not in a tax bracket that makes itemizing worthwhile and only stays put five years (those young people are restless), buying ends up costing more than renting in 27 of the 100 largest metros. Those 27 include not only pricey coastal markets, but also in markets like PhoenixLas Vegas, and Colorado Springs. On the expensive coasts, it’s not even close. For instance, in this scenario, buying costs 30% more than renting in Orange County. An FHA loan might be within reach for many first-timers. But, in many costly parts of the country, it doesn’t make buying cheaper than renting. Our interactive map shows this for all the 100 largest metros:


blogpost map no 2

So, to buy or to rent? Falling mortgage rates and rising rents mean that buying looks even better versus renting than one year ago, especially in California. But buying is not for everyone. If you live in a market that’s a close call, and you plan to stay less than seven years, don’t itemize your tax deductions, or need an FHA loan, buying might not be the clear-cut winner. Indeed, if many or all of these things apply to you, buying could end up costing far more than renting. Buying may be 38% cheaper than renting nationally. But there are still plenty of people for whom renting would cost less than buying, even if low down payment loans give them the option to buy.

Note: the detailed methodology and assumptions behind our Rent Versus Buy model are here. Additionally, for our comparison of financing options, we used mortgage rates from the Mortgage Bankers Association, along with our own mortgage-rate estimate for the 10% down scenario.

We used an annual private mortgage insurance premium rate of 0.71% (1.31% for larger loans) for the 10% down payment scenario based on the MGIC rate table. We assumed mortgage insurance premiums – unlike mortgage interest and property taxes – are not tax deductible, in line with current law, though that might change.

In the FHA scenario, we used a 1.35% annual mortgage insurance premium and amortized the 1.75% upfront mortgage insurance premium. In a handful of markets many homes are above the local FHA loan limit. Nevertheless, we included all metros in the FHA scenarios.


Condo Prices and Apartment Rents Outpacing Single-Family Home Costs

Jed Kolko, Chief Economist
October 9, 2014

Asking prices rose 7.3% year-over-year for condos versus 6.0% for single-family homes. Condo prices are up more than 15% in Miami, Denver, and West Palm Beach.

The Trulia Price Monitor and the Trulia Rent Monitor are the earliest leading indicators of housing price and rent trends nationally and locally. They adjust for the changing mix of listed homes and show what’s really happening to asking prices and rents. Asking prices lead sales prices by approximately two or more months. As a result, the Monitors reveal trends before other price indexes do. With that, here’s the scoop on where prices and rents are headed.

Prices Rose 0.8% Month-over-Month in September

Nationally, the month-over-month increase in asking home prices rose to 0.8% in September. Year-over-year, asking prices rose 6.4%, down from the 10.4% year-over-year increase in September 2013. Asking prices rose year-over-year in 92 of the 100 largest U.S. metros.

September 2014 Trulia Price Monitor Summary
% change in asking prices # of 100 largest metros with asking-price increases % change in asking prices, excluding foreclosures
seasonally adjusted
0.8% N/A 0.8%
seasonally adjusted
1.7% 80 2.0%
Year-over-year 6.4% 92 5.9%
Data from previous months are revised each month, so data being reported now for previous months might differ from previously reported data.

The South Leads in Price Gains

Five of the 10 U.S. metros with the largest year-over-year price increases were in the South, including Miami, Palm Bay-Melbourne-Titusville, West Palm Beach, Birmingham, and Atlanta.

These 10 metros include some markets where prices are speeding up and some where prices are slowing down. Prices are rising faster now than a year ago in Toledo, Birmingham, Miami, and several other metros. But in the two California metros where prices are rising the most – Ventura County and Oakland – as well as in Detroit and Atlanta, the past year’s price gains were actually slower than the previous year’s increases of 20% or more.

 Where Asking Prices Rose Most Year-over-Year, September 2014
# U.S. Metro Y-o-Y % asking price change, Sept 2014 Y-o-Y % asking price change, Sept 2013 Difference in price change, Sept 2014 vs Sept 2013
1 Miami, FL 14.0% 9.3% 4.7%
2 Palm Bay-Melbourne-Titusville, FL 13.1% 6.7% 6.4%
3 Toledo, OH 12.5% 1.6% 10.9%
4 Ventura County, CA 12.4% 20.2% -7.7%
5 Oakland, CA 11.9% 28.7% -16.8%
6 West Palm Beach, FL 11.7% 6.0% 5.8%
7 Birmingham, AL 11.5% 1.8% 9.7%
8 Detroit, MI 11.4% 20.0% -8.6%
9 Lake County-Kenosha County, IL-WI 11.3% 8.6% 2.7%
10 Atlanta, GA 11.1% 20.9% -9.7%
Note: among 100 largest metros. To download the list of asking home price changes for the largest metros: Excel or PDF

metro map sept 2014

Condo Prices Rising Faster than Single-Family Home Prices

Nationally, asking prices for condos – by which we mean all for-sale homes in multi-unit buildings — rose 7.3% year-over-year. That’s more than the 6.0% increase for single-family homes. Asking prices for condos rose more than 15% year-over-year in Miami, Denver, and West Palm Beach. Condo prices rose faster than single-family home prices in 18 of the nation’s 20 largest condo markets.

Although condo prices are outpacing single-family home prices, they are following similar patterns. Condo prices and single-family home prices are both rising faster in metros with stronger job growth and those that had a more severe housing bust in the past decade (a bounceback due to the “rebound effect”). In fact, metros with bigger condo price increases also tend to have bigger single-family home price increases.

Condo and Single-Family Home Prices in the 20 Largest Condo Markets
# U.S. Metro Y-o-Y % change in asking prices for condos, Sept 2014 Y-o-Y % change in asking prices for single-family homes, Sept 2014
1 Miami, FL 17.0% 11.7%
2 Denver, CO 15.5% 8.2%
3 West Palm Beach, FL 15.2% 9.5%
4 San Francisco, CA 12.7% 9.0%
5 Chicago, IL 10.9% 8.6%
6 Middlesex County, MA 10.4% 6.5%
7 Minneapolis-St. Paul, MN-WI 10.0% 10.1%
8 Boston, MA 9.6% 2.4%
9 Seattle, WA 9.4% 8.5%
10 Tampa-St. Petersburg, FL 9.1% 4.1%
11 Los Angeles, CA 8.7% 6.8%
12 Fort Lauderdale, FL 8.2% 5.2%
13 Philadelphia, PA 6.0% 3.3%
14 Honolulu, HI 5.7% 3.5%
15 New York, NY-NJ 5.0% 4.0%
16 Washington, DC-VA-MD-WV 4.9% 2.5%
17 Newark, NJ-PA 4.2% 1.0%
18 San Diego, CA 4.1% 1.8%
19 Long Island, NY 3.9% 2.6%
20 Providence, RI-MA 2.0% 3.0%
Note: condos refer to all for-sale units in multi-unit buildings. The 20 largest condo markets were determined based on Census data.

Rents Rising Faster for Apartments Than for Single-Family Homes

Nationally, rents rose 6.5% year-over-year in September. Apartment rents were up 6.9%, while single-family home rents gained 5.2%. Like the for-sale market, the rental market is tighter for multi-unit buildings than for single family homes. Census data show that the multi-unit vacancy rate has been falling steadily, but remains elevated for single-family homes. Despite the multi-unit construction boom, the cost of living in these buildings is rising faster than in single-family homes – both for renters and buyers. This is not necessarily a sign of a permanent shift toward city living. But it certainly reflects a reversal from the past decade’s bubble, when demand was strong for single-family homes in the suburbs and beyond.

                         Rent Trends in the 25 Largest Rental Markets
# U.S. Metro Y-o-Y % change in rents, Sept 2014 Median rent for 2-bedroom, Sept 2014
1 San Francisco, CA 15.5% 3600
2 Oakland, CA 14.2% 2600
3 Denver, CO 13.7% 1550
4 Sacramento, CA 13.3% 1250
5 Seattle, WA 9.4% 1800
6 Los Angeles, CA 9.0% 2550
7 Phoenix, AZ 8.8% 1050
8 Philadelphia, PA 8.7% 1600
9 Miami, FL 8.5% 2450
10 Baltimore, MD 8.3% 1600
11 New York, NY-NJ 7.8% 3500
12 Atlanta, GA 7.1% 1250
13 Chicago, IL 7.0% 1650
14 Riverside-San Bernardino, CA 6.3% 1550
15 Tampa-St. Petersburg, FL 6.2% 1150
16 St. Louis, MO-IL 6.2% 950
17 San Diego, CA 6.0% 2000
18 Orange County, CA 6.0% 2100
19 Las Vegas, NV 5.9% 1000
20 Dallas, TX 5.2% 1400
21 Houston, TX 5.1% 1500
22 Portland, OR-WA 4.7% 1300
23 Boston, MA 4.4% 2350
24 Washington, DC-VA-MD-WV 4.2% 2200
25 Minneapolis-St. Paul, MN-WI 0.6% 1300

The next Trulia Price Monitor and Trulia Rent Monitor will be released on Thursday, November 6.

How did we put this report together? The Trulia Price Monitor and the Trulia Rent Monitor track asking home prices and rents on a monthly basis, adjusting for the changing composition of listed homes, including foreclosures provided by RealtyTrac. The Trulia Price Monitor also accounts for regular seasonal fluctuations in asking prices in order to reveal underlying price trends. The Monitors can detect price movements at least three months before the major sales-price indexes do. Historical data are revised monthly. Thus, historical data presented in the current release are the best comparison with current data. Our FAQs provide the technical details.


Housing Barometer: Recovery Continues, But Virtuous Cycle Not So Saintly

Jed Kolko, Chief Economist
October 1, 2014

Three out of five Housing Barometer measures are getting close to normal. But the two measures that hitch housing to the broader economy are still struggling, so the job market and housing market aren’t helping each other as they should.

How We Track This Uneven Recovery

Since February 2012, Trulia’s Housing Barometer has charted how quickly the housing market is returning to “normal” based on multiple indicators. Because the recovery is uneven, with some housing activities improving faster than others, our Barometer highlights five measures:

  1. Existing home sales, excluding distressed sales (National Association of Realtors, NAR)
  2. Home-price levels relative to fundamentals (Trulia Bubble Watch)
  3. Delinquency + foreclosure rate (Black Knight, formerly LPS)
  4. New construction starts (Census)
  5. The employment rate for 25-34 year-olds, a key age group for household formation and first-time homeownership (Bureau of Labor Statistics, BLS)

Home prices from our Bubble Watch is a quarterly report. The other four measures are reported monthly. To reduce volatility, we use three-month moving averages for these measures. For each indicator, we compare the latest available data to (1) its worst reading during the housing bust and (2) its pre-bubble “normal” level.


All Five Measures Improved Year-Over-Year

Four of the five Housing Barometer indicators made good progress over the past year and the fifth – non-distressed existing home sales – eked out a slight increase. But, despite improvement, the employment rate for young adults still hasn’t gotten even half of the way back to normal.

Housing Indicators: How Far Back to Normal?

Now One quarter ago One year ago
Existing home sales, excl. distressed 80% 64% 79%
Home price level 75% 66% 56%
Delinquency + foreclosure rate 74% 74% 56%
New construction starts 49% 49% 37%
Employment rate, 25-34 year-olds 37% 35% 25%
For each indicator, we compare the latest available data to (1) its worst reading for that indicator during the housing bust and (2) its pre-bubble “normal” level
  • Existing home sales (excluding distressed) were 80% back to normal in August, up from 64% one quarter earlier, after stumbling from 79% one year ago. Distressed sales keep falling. Increasingly, foreclosures are concentrated in states with a foreclosure laws that result in a longer legal process. Existing sales are in better shape than new home sales, dominating the market even more than usual. The ratio of existing to new home sales was 10:1 in August, compared with a long-term normal ratio of 6:1..
  • Home prices continue to climb, though at a slower rate. Trulia’s Bubble Watch shows prices were 3.4% undervalued in 2014 Q3, compared with 13.5% undervalued at the worst of the housing bust. That means prices are three-fourths of the way back to their “normal” level at which they’re neither over- nor undervalued.
  • The delinquency + foreclosure rate was 74% back to normal in August, the same as one quarter ago and up significantly from 56% one year ago. With the share of mortgage borrowers with negative or near-negative equity dropping, the default rate should continue to go down.
  • New construction starts are 49% back to normal, the same as one quarter ago and up from 37% one year ago. Multi-unit starts continue to lead the construction recovery. Year-to-date multi-unit starts are up 23% year-over-year, versus just 3% for single-family starts. Even though single-family starts are far below normal levels, household formation looks too weak to support more single-family homebuilding.
  • Employment for young adults brings up the rear. August’s three-month moving average shows that 75.7% of adults age 25-34 are employed, which is just 37% of the way back to normal. Because young adults need jobs in order to move out of their parents’ homes, form their own households, and eventually become homeowners, the housing recovery depends on millennials finding work. Among 25-34 year-olds, just 12% who have jobs live with their parents. By contrast, 21% without jobs do.

The Housing Market and the Broader Economy Aren’t Helping Each Other

The two lagging Housing Barometer measures – construction and young-adult employment – connect the housing market to the job market. First, housing should help jobs: construction adds to employment not only in homebuilding but also in related industries like furniture manufacturing and home-improvement retailing. Second, jobs should help housing: young adults are more likely to rent or buy, rather than live with others, if they have jobs. In this recovery, young-adult employment and construction are weak – so the virtuous cycle of housing and jobs isn’t looking quite so virtuous.

That’s not to say that housing isn’t doing anything for the economy. Rising home prices make homeowners wealthier, and the more wealth people have, the more they spend. And the decline in defaults and foreclosures have helped stabilize the financial system and hard-hit neighborhoods. As we’ve seen, home prices right themselves, as undervalued homes attract investors and other buyers, pushing prices back up. In turn, higher prices make defaults less likely.

But as the housing recovery continues, it depends less on the “rebound effect” – this tendency of the housing prices to right themselves – and more on such fundamentals as jobs, income growth, and household formation. These have been slow to improve in this recovery. In particular, the Housing Barometer shows that young-adult employment lags. What’s more, new Census data showed that median income has stagnated and household formation is far below normal levels. In this recovery, jobs and housing can’t get what they need from each other.


NOTE: Trulia’s Housing Barometer tracks five measures: existing home sales excluding distressed (NAR), home prices (Trulia Bubble Watch), delinquency + foreclosure rate (Black Knight), new home starts (Census), and the employment rate for 25-34 year-olds (BLS). Also, our estimate of the “normal” share of sales that are distressed is 5%; Black Knight reports that the share was in the 3-5% range during the bubble. For each measure, we compare the latest available data to (1) the worst reading for that indicator during the housing bust and (2) its pre-bubble “normal” level. We use a three-month average to smooth volatility for the four indicators that are reported monthly (all but home prices). The latest data are from August for the employment rate, existing home sales, new construction starts, and the delinquency + foreclosure rate; and Q3 for home prices.


Bubble Watch: Home Prices 3% Undervalued, With Few Metros Bubbling Up

Jed Kolko, Chief Economist
October 1, 2014

Home prices now look 3% undervalued measured by long-term fundamentals. Just 7 of the 100 largest metros are more than 10% overvalued.

(UPDATE 10/15/14: We’ve created an FAQ that answers frequently-asked questions about Trulia’s Bubble Watch report. It’s available here.)

Trulia’s Bubble Watch shows whether home prices are overvalued or undervalued relative to their fundamental value by comparing prices today with historical prices, incomes, and rents. The more prices are overvalued relative to fundamentals, the closer we are to a housing bubble – and the bigger the risk of a price crash. Sharply rising prices aren’t necessarily a sign of a bubble. By definition, a bubble develops when prices look high relative to fundamentals.

Bubble watching is as much an art as a science because there’s no definitive measure of fundamental value. To try to put numbers on it, we look at the price-to-income ratio, the price-to-rent ratio, and prices relative to their long-term trends. We use multiple data sources, including the Trulia Price Monitor, as leading indicators of where home prices are heading. We combine these various measures of fundamental value rather than relying on a single factor because no one measure is perfect. Trulia’s first Bubble Watch report, from May 2013, explains our methodology in detail. Here’s what we found this quarter. (This report contains larger-than-usual revisions of previous Bubble Watch estimates. See note.)

Home Prices are 3% Undervalued Nationally

We estimate that home prices nationally are 3% undervalued in the third quarter of 2014 (2014 Q3). In 2006 Q1, during the past decade’s housing bubble, home prices soared to 34% overvalued before dropping to 13% undervalued in 2012 Q1. One quarter ago (2014 Q2), prices looked 5% undervalued; one year ago (2013 Q3), prices looked 6% undervalued. This chart shows how far current prices are from a bubble:


Texas and California Metros Look Most Overvalued

The most overvalued market is now Austin, at 19%, followed by the California metros of Los Angeles, Orange County, San Francisco, and Riverside-San Bernardino. The California metros on the top-10 list were all significantly overvalued during the past bubble, ranging from 46% overvalued in San Francisco to a dizzying 87% in Riverside-San Bernardino. By contrast, Austin and Houston are the only metros out of the 100 largest that look more overvalued today than in 2006. Texas markets avoided the worst of the housing bubble during the past decade. Recently, they’ve had double-digit home-price increases.

Top 10 Metros Where Home Prices Are Most Overvalued
# U.S. Metro Home prices relative to fundamentals, 2014 Q3 Home prices relative to fundamentals, 2006 Q1 Year-over-year change in asking prices, Aug 2014
1 Austin, TX +19% +2% 11.9%
2 Los Angeles, CA +15% +73% 8.9%
3 Orange County, CA +15% +66% 6.0%
4 San Francisco, CA +12% +46% 11.2%
5 Riverside-San Bernardino, CA +11% +87% 13.8%
6 Honolulu, HI +10% +36% 6.7%
7 San Jose, CA +10% +53% 10.4%
8 Houston, TX +8% +1% 10.4%
9 Denver, CO +7% +17% 9.4%
10 Oakland, CA +7% +67% 12.4%
Note: positive numbers indicate overvalued prices; negative numbers indicate undervalued, among the 100 largest metros. Click here to see the price valuation for all 100 metros: Excel or PDF.

Almost all of the most undervalued metros today are in the Midwest and New England, led by Dayton and Cleveland. One year ago, Las Vegas and two Florida metros, Lakeland-Winter Haven and Palm Bay-Melbourne-Titusville, were on the most-undervalued list. Since then, price gains have lifted them off this list. In the past year, price gains in the undervalued Midwestern markets like Detroit have outpaced price gains in the undervalued New England markets like New Haven.

Top 10 Metros Where Home Prices Are Most Undervalued
# U.S. Metro Home prices relative to fundamentals, 2014 Q2 Home prices relative to fundamentals, 2006 Q1 Year-over-year change in asking prices, May 2014
1 Dayton, OH -21% 8% 8.8%
2 Cleveland, OH -19% 13% 5.9%
3 Detroit, MI -18% 33% 11.9%
4 Akron, OH -18% 13% 8.9%
5 Lake County-Kenosha County, IL-WI -17% 24% 12.2%
6 Toledo, OH -17% 17% 9.6%
7 New Haven, CT -16% 31% -0.9%
8 Camden, NJ -15% 31% 1.8%
9 Worcester, MA -15% 38% 3.5%
10 Fairfield County, CT -14% 30% 0.4%

Note: positive numbers indicate overvalued prices; negative numbers indicate undervalued, among the 100 largest metros. Click here to see the price valuation for all 100 metros: Excel or PDF.

Are We Headed Toward The Next Bubble?

One test of whether it’s time to sound the bubble alarm is whether prices are rising faster in markets that are already overvalued. Price gains in overvalued markets are a sign that we’re headed for danger, while price gains in undervalued markets are probably just a sign of getting back toward normal.

To measure this, we compare the most recent year-over-year asking-price change from the Trulia Price Monitor with our Bubble Watch measure from 2013 Q3, one year ago. That’s because what matters is whether overvalued markets subsequently see faster price gains (remember that current Bubble Watch values, by design, incorporate recent price trends).

The scatterplot below shows the relationship. Hard to see a pattern, right? Actually, there’s a negative relationship, but it’s small (correlation = -0.07) and not statistically significant. At least we can say that overvalued markets are not systematically seeing larger price increases, though some individual overvalued markets like Austin and Riverside-San Bernardino did have big price jumps.


Another measure of bubble risk is how many markets are more than 10% overvalued. As of 2014 Q3, only seven of the top 100 metros exceeded this level, as shown in the table above. That’s the highest number since 2009 Q1, when prices were plummeting and the past bubble had mostly deflated. The last time that the number of 10%+ overvalued markets was at least seven and rising was 2000 Q2 – early in the formation of that bubble.


All this means that bubbles should not be our top housing worry today. Our latest Housing Barometer shows that weak construction and subpar young-adult employment are the recovery’s big red flags. By contrast, prices are slowing to a sustainable pace and staying within striking distance of normal.


Note: each quarter’s Bubble Watch includes revisions to previous estimates because the underlying data are often revised or updated. To compare the national or metro trend over time, look at the current report’s historical numbers, not previously reported numbers. This quarter’s Bubble Watch contains larger-than-usual revisions because a key input data series – the Case-Shiller national index – recently had significant revisions that resulted in less extreme price swings during the boom and bust.