Real Estate Data for the Rest of Us

articles about “Affordability

The Debt of Wrath: Do Student Loans Affect Saving for a Home?

In less expensive housing markets, young millennials saving up for a 20% down payment will actually be hindered by a college degree because of student debt payments. But in the most expensive markets, only those with a college degree will be able to make enough to save up for a home within their lifetime.

To go to college, or not to go? That is a question many millennials ask themselves. A college degree undeniably comes with perks, including better long-term job prospects and higher lifetime earnings. But many millennials who get a college degree must pay back student loans, making it more difficult to save for a down payment in the short run.

So why does this matter? Well, saving for a down payment is one of the biggest obstacles to homeownership. In fact, according to a recent Trulia survey*, 30% of 25-30 year olds in the U.S. said that they are currently trying to save for a down payment in the next two years. Moreover, there’s been much discussion about the impact of student loan debt on the ability of recent graduates to save for a down payment and buy a home.

So the real question is – if owning a home is part of your personal American Dream, is a college degree a necessary pre-cursor to being able to afford a down payment and securing the keys? The answer depends on where you want to buy a home.

Can You Really Save Up for a Down Payment?
A common approach to figuring out how long it will take to save for a down payment to buy a home is to calculate a 20% down payment (the ideal amount home buyers should put down) using the median housing price of a metro area, and assume that a would-be homebuyer is saving 10% of what they make each year (for which we’ll use the annual median household income). To get the number of years that it will take for a household to save for a home, you then divide the 20% down payment by the amount saved each year.

So, if the median house is priced at $200,000 and the median household income is $50,000, it would take eight years for the median household to save for a down payment.

Median Priced Home: $200,000
20% Down Payment on Median Priced Home: 20% x $200,000 = $40,000
Median Annual Income: $50,000
10% of Income Saved Each Year: 10% x $50,000 = $5,000
# of Years Required to Save Down Payment: $40,000 / $5,000 = 8 Years

However, eight years isn’t really an accurate estimate of how long it will take to save for a down payment because both home prices and household income can change during those eight years. For example, if you’re not getting a raise at the same rate at which home prices are rising, it will take longer to save for a down payment and vice versa. Additionally, this calculation doesn’t factor in student debt repayment, which is one obstacle to homeownership for college-educated millennials. The average college-educated American has about $26,000 in student loan debt, which translates into an average monthly payment of about $280 per month on a 10-year repayment plan. Moreover, approximately 30% of young millennial households have a 4-year college degree and 70% do not.

A more accurate method (which we used here in this study) is to estimate how much home prices and household income change over time, and calculate the point in time at which cumulative household savings equals the down payment required at that future time period. This calculation also factors in student debt repayment and how that takes away from a household’s saving power.

To estimate how much the required down payment will grow over time, we used the 20-year Federal Housing Finance Agency (FHFA) home price growth rate for each of the 100 largest U.S. metros given the current median listing home prices on Trulia. For household income growth, we used data from the Census’ 2013 American Community Survey (ACS) to identify the difference in income between fully-employed 25-30 year olds and 45-50 years olds with and without a college degree to extrapolate how much money each group is expected to make over time. Doing so takes into account the fact that households tend see the largest increase in income over this 20-year period. We then assume a 20% down payment requirement and 10% savings rate for each group. For the college-educated group, we assume that they’ve signed up for a 10-year repayment plan on their student loans and subtracted the average monthly student loan payment ($280) from their savings for the first 120 months. Last, we identify the specific month in the future at which each group – those with and without college degrees — has saved up enough for a 20% down payment on a median priced home in their respective housing market.

Where You Can Save for a Down Payment Fast
First, the good news: there are many housing markets in the U.S. where a Millennial will be able to make enough money to save for a down payment in a reasonable time, regardless of whether they hold a college degree. Topping the list is Detroit, where a 25-30 year old could save for a down payment in 4.1 years with a college degree and 5.3 years without. Dominating the rest of the list are metros in Ohio where would-be homeowners in Akron, Dayton, Cleveland and Toledo can save for a down payment in six years or less.

Trulia_EasyDownpayment_Infographic

Where You Can Save a 20% Down Payment Fast
With a College Degree Without a College Degree
# U.S. Metro Years Needed to Save for Down Payment Required Down Payment at Time of Purchase U.S. Metro Years Needed to Save for Down Payment Required Down Payment at Time of Purchase
1 Detroit, MI 4.1 $21,644 Detroit, MI 5.3 $22,145
2 Camden, NJ 5.3 $43,348 Dayton, OH 5.3 $26,339
3 Dayton, OH 5.7 $26,534 Buffalo, NY 5.4 $32,483
4 Akron, OH 5.9 $29,861 Akron, OH 5.7 $29,718
5 Cleveland, OH 6.1 $30,437 Toledo, OH 5.8 $27,875
6 Buffalo, NY 6.3 $33,055 Camden, NJ 5.9 $43,993
7 Rochester, NY 6.3 $32,767 Cleveland, OH 5.9 $30,343
8 Toledo, OH 6.6 $28,322 Rochester, NY 6.3 $32,767
9 Pittsburgh, PA 6.7 $37,838 Pittsburgh, PA 6.3 $37,556
10 Kansas City, MO 6.8 $39,330 Syracuse, NY 6.4 $35,329

 

Where You Can Save Faster Without a College Degree
What’s more is that in several of these housing markets, millennial households without a college degree can actually save for a down payment faster than college-educated households. For example, in metros like Columbia, El Paso and Las Vegas, 25-30 year old households without a college degree will be able to save for a down payment at least a year and a half faster than those with a college degree.

Trulia_NoDegreeDownpayment_Infographic

Where You Can Save at Least 1 Year Faster Without a College Degree
# U.S. Metro Years Needed to Save without College Degree Years Needed to Save with College Degree Difference
1 Columbia, SC 8.1 9.7 -1.6 years
2 El Paso, TX 7.4 9.0 -1.6 years
3 Las Vegas, NV 8.7 10.2 -1.5 years
4 Daytona Beach, FL 10.8 11.9 -1.1 years

How is this possible? Two reasons. First, the boost in income that you get for having a college degree in these metros is small. Second, households with college degrees typically have student loan payments, which hinder their ability to save for a down payment.

 

Trulia_ColumbiaDownpayment_Chart

Want To Be A California Homeowner? Go To College!
Next the bad news: there are several housing markets where a college degree is the ticket to saving for a 20% down payment, and nearly all of them are in California.

And even households with a college degree will start to show gray hairs by the time they’ve saved up enough to buy a home. For example, it will take 29.4 years for a 25-30 year old household to save up a 20% down payment on a median priced home in San Francisco, 18.8 years in Los Angeles, 18.5 years in Orange County and 17.7 years in San Diego and San Jose.

Trulia_HardDownpayment_Infographic

Where Saving For a 20% Down Payment Takes Decades
With College Degree Without a College Degree
# U.S. Metro Years Needed to Save for Down Payment Required Down Payment at time of purchase U.S. Metro Years Needed to Save for Down Payment Required Down Payment at time of purchase
1 San Francisco, CA 29.4 $560,590 San Francisco, CA Not Possible N/A
2 Los Angeles, CA 18.8 $196,616 San Jose, CA 45.4 $665,508
3 Orange County, CA 18.5 $235,959 Los Angeles, CA 39.9 $353,270
4 San Diego, CA 17.7 $192,081 Orange County, CA 32.3 $347,842
5 San Jose, CA 17.7 $289,072 San Diego, CA 29.0 $262,589
6 Honolulu, HI 16.0 $165,588 Oakland, CA 27.3 $267,605
7 Oakland, CA 15.6 $193,453 Ventura County, CA 22.9 $230,929
8 Ventura County, CA 15.5 $189,325 New York, NY 20.2 $149,905
9 Denver, CO 14.3 $125,314 Fairfield County, CT 20.1 $185,494
10 Cape CoralFort Myers, FL 13.3 $74,130 Honolulu, HI 18.0 $173,574

The news gets even worse for those that don’t have a college degree. In pricey San Francisco, saving up for a 20% down payment is impossible. Why? Because prices are high and rising fast, so the monthly increase for the required down payment outpaces the increase in the total monthly household savings during a typical lifespan. And in other California metros, young millennials without college degree will be old and gray (or possibly in the grave) by the time they’ve saved enough for a 20% down payment – 45.4 years in San Jose, 39.9 years in Los Angeles, 32.3 years in Orange County, 29.0 years in San Diego, 27.3 years in Oakland and 22.9 years in Ventura County.

Trulia_SJDownpayment_Chart

No College Degree? Try a 10% Down Payment.
Just because you don’t have a college degree, doesn’t mean you should completely abandon your dreams of homeownership. While a 20% down payment is the “traditional” amount that allows borrowers to avoid costly mortgage insurance, it is not uncommon for homebuyers to put 10% down (however, we recommend putting down as large of a down payment as you can afford). In the long run, putting 20% down will save you money, but putting 10% down can get you into a home in less than half the time. How is this possible? Because price appreciation outpaces income growth for that cohort, so the required down payment for a home increases faster than the marginal increase in monthly savings contributions.

For example, millennials without a college degree in San Francisco will actually be able to save for a 10% down payment in 28.5 years, compared to not being able to save for a 20% down payment ever. And in other expensive metros, the number of years to save for a down payment is cut by more than half. In pricey San Jose, the time is cut from 45.4 years to just 15.4; in Los Angeles it drops from 39.9 to 12.8 years; Orange County drops from 32.3 to 11.6 years and San Diego moves from 29.0 to only 11.8 years.

Trulia_SFDownpayment_Chart

Saving 20% Down vs. 10% Down in the Most Expensive Housing Markets Without a College Degree
U.S. Metro # of Years to Save 20% Down Payment # of Years to Save 10% Down Payment
San Francisco, CA Not Possible 28.5
San Jose, CA 45.4 15.4
Los Angeles, CA 39.9 12.8
Orange County, CA 32.3 11.6
San Diego, CA 29.0 11.8
Oakland, CA 27.3 11.3
Ventura County, CA 22.9 9.8
New York, NY 20.2 8.8
Fairfield County, CT 20.1 9.3
Honolulu, HI 18.0 8.3

To recap, student loans payments temporarily hinder households saving for a down payment. But because college-educated households earn more in the long-run, a college degree is about the only way to save for a down payment in some of the most expensive markets. However, households without a household degree should fear not – saving up for a 10% down payment is disproportionally faster because of higher appreciation in house prices relative to income during the additional years of saving for 20% down

METHODOLOGY
To estimate how a college degree impacts the ability to save for a down payment, we take a three step-approach:

(1) Estimate income, income growth, and monthly savings for each month into the future.

We use 2013 ACS data on annual median incomes for households headed by 25-30 year olds with and without a college degree for each of the largest 100 metropolitan areas. Next, we use the median annual income of households headed by 45-50 year olds with and without college degrees to project household income growth for each cohort. In addition, we assume a 2% inflation-adjusted increase in pay, and a generous savings account interest rate of 1%. Doing so takes into account the fact that household income tend to increase over time, both because of inflation but also because of life-cycle effects. We then assume each household saves 10% of their monthly income for a down payment, but subtract the average student loan payment of $280 from the college-educated cohort’s savings for the first 10 years (estimated payment on the average student loan debt is available here: https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action).

(2) Estimate median prices, price growth, and the estimated down payment for each month into the future.

We estimate the 20% down payment on the median priced home for each metro in each month. To do this, we use the FHFA 20-year growth rate to the June 2015 median house price listing on Trulia for each metro weighted by a 2% inflation rate. Doing so takes into account the fact that house prices change during the period in which a household is saving for a down payment.

(3) Estimate the month in the future when each cohort can buy a home.

We calculate the month in time when cumulative monthly household savings equals the required 20% down payment for each cohort, and then convert the number of months into a yearly figure. We calculate the number of years to save for a 10% down payment in similar manner.

* This survey was conducted online within the United States between May 26th and 28th, 2015 among 2,026 adults (aged 18 and over) by Harris Poll on behalf of Trulia via its Quick Query omnibus product. Figures for age, sex, race/ethnicity, education, region and household income were weighted where necessary to bring them into line with their actual proportions in the population.Propensity score weighting was used to adjust for respondents’ propensity to be online.

All sample surveys and polls, whether or not they use probability sampling, are subject to multiple sources of error which are most often not possible to quantify or estimate, including sampling error, coverage error, error associated with nonresponse, error associated with question wording and response options, and post-survey weighting and adjustments. Therefore, the words “margin of error” are avoided as they are misleading. All that can be calculated are different possible sampling errors with different probabilities for pure, unweighted, random samples with 100% response rates. These are only theoretical because no published polls come close to this ideal.

Respondents for this survey were selected from among those who have agreed to participate in our surveys. The data have been weighted to reflect the composition of the adult population. Because the sample is based on those who agreed to participate in our panel, no estimates of theoretical sampling error can be calculated

0 comments

Pads for Grads: Where the Newly Educated Can Afford Rent

Of the largest 25 largest rental markets, less than 19% of all rental listings on the market are affordable for recent college graduates. The most affordable places to live for recent grads include St. Louis, Dallas, and Houston, while the least affordable are Portland, Riverside, and Orange County.

School is (nearly) out for the summer. That means millions of newly-minted college graduates will strike out on their own to find a job and place to live. Here at Trulia, we’re experts in the latter, so we’ve set out to help new grads find areas where they can afford to rent and still have some money left over to pay back their student loans.

We measure graduate affordability as the share of rental homes on Trulia, as of May 7, 2015, that are within reach of an employed, college graduate between the ages of 22 and 25. Our standard is whether the total monthly payment, including rental payment and insurance, is less than 31% of the metro area’s median income for recent grads. We calculate affordability based on the local median graduate income and rents for the 25 largest rental markets in the US. Thus, what we consider affordable for a graduate varies from market to market.

For instance, in metro Atlanta, the median salary for a new grad is $25,571 per year. If you’re only making this much money, then you can only rent homes that cost less than $661 per month based on the 31% guideline. Sadly, this means just 8.7% of the homes for rent in Atlanta (those listed for less than $661) are within reach.

Want To Pay Less In Rent? Move Inland
Generally, the picture isn’t pretty for recent grads who want to find an affordable place on their own. Those who head to the Midwest and Southern states can save the most on rent. But even in St. Louis, which tops the list of most affordable metros for new grads, just 18.6% of rental units are affordable. And it’s all downhill from there: with the next most affordable areas having less than 15% of affordable rental units. The good news is, you would need no more than one roommate to make the median rental unit affordable in each of five least expensive metros for grads.

Trulia_Grad_StLouis

Top 5 Most Affordable Rental Markets for Recent Grads
# U.S. Metro % of rental units affordable to recent college grads Max monthly rent payment for an affordable unit # of roommates needed to make median rental affordable Median # of bedrooms
1 St. Louis, MO 18.6%  $666 0.3 2
2 Dallas, TX 14.9%  $799 0.5 2
3 Houston, TX 10.4%  $746 0.7 2
4 Atlanta, GA 8.7%  $661 0.5 2
5 Phoenix, AZ 8.0%  $613 0.7 2
Note: Of 25 largest rental markets. We count any fraction of a roommate needed as a whole person for purposes of making rent affordable. For example, to not break the 31% affordability criteria, a recent grad in St. Louis, MO would need at least 1 roommate to make the median rent affordable. Income estimates are inflation-adjusted to 2015 dollars and originate from the 2013 American Community Survey for college educated graduates between the ages of 22 and 25. Download the full dataset for the 25 largest U.S. rental markets here.

Go West Young Grad? Only If You Can Pay More
If you plan to head to the West Coast after graduation, then you might want to take a crash course in sticker shock.  Less than 1% of all rental units in the bottom five are affordable, and almost all are in expensive California markets. Portland, OR ranks the least affordable with 0.1% of units affordable, followed by Riverside-San Bernardino, CA (0.2%) Orange County, CA (0.2%), Miami, FL (0.4%) and, San Diego, CA (0.4%).

So what’s a grad to do? Although it’s an exciting prospect to get a place of your own right out of college, the cost of doing so may be large. For those not wanting to live with Mom and Dad, there are two options: spend time searching for the few affordable units that are out there (Trulia can help out with that!), or find roommates.

To help with the latter, we’ve crunched the numbers to find out how many roommates a recent grad would need to afford rent, and whether that means sharing a bedroom. In the five least affordable rental markets, a recent grad would need at least two roommates to make the median rental unit affordable, and in Riverside-San Bernardino, CA, that number jumps to three. In all of the five least affordable markets except Riverside-San Bernardino, CA, this means that two individuals would need to share a room, just like during freshman year!

Trulia_Grad_Portland

Top 5 Least Affordable Rental Markets for Recent Grads
# U.S. Metro % of rental units affordable to recent college grads Max monthly rent payment for an affordable unit # of roommates needed to make median rental affordable Median # of bedrooms
1 Portland, OR 0.1%  $479 1.5 2
2 RiversideSan Bernardino, CA 0.2%  $426 2.3 3
3 Orange County, CA 0.2%  $666 1.9 2
4 Miami, FL 0.4%  $666 2.3 2
5 San Diego, CA 0.4%  $666 1.6 2
Note: Of 25 largest rental markets. We count any fraction of a roommate needed as a whole person for purposes of making rent affordable. For example, to not break the 31% affordability criteria, a recent grad in Portland, OR would need at least 2 roommates to make the median rent affordable. Income estimates are inflation-adjusted to 2015 dollars and originate from the 2013 American Community Survey for college educated graduates between the ages of 22 and 25. Download the full dataset for the 25 largest U.S. rental markets here.

SF-DC-NY: How Much Do You Really Need To Earn To Rent?
Want to live like a young professional and not like a fresh-faced graduate? You might want to think twice about moving to a high-wage metro. For recent college graduates looking to live comfortably, moving to a metro where the young and educated earn the most might be a tempting offer. After all, in San Francisco, Washington, DC, and New York, the starting salaries for recent graduates aren’t too far off from salaries of more experienced workers in other metros. These areas also have high rates of employment. So why not pack up and move to The City by the Bay, The District, or The Big Apple? Two words: high rents.

Many of the metros that pay the highest salaries also come with hefty rental price tags. Here’s a look at how grad salaries stack up to the salaries needed to afford median rents. So take notice recent grads, bigger isn’t always better – ‘cause that big salary may not seem so big after you start writing out that monthly rent check.

Trulia_Grad_BarChart

Where Grads Need To Earn The Most To Afford Median Rents
# U.S. Metro Median Income for recent college grads Income Needed to Afford Median Rent Median Rent, May 2015
1 San Francisco, CA $41,244 $137,272 $3,500
2 New York, NY $32,995 $121,584 $3,100
3 Boston, MA $31,552 $98,052 $2,500
4 Miami, FL $25,778 $86,285 $2,200
5 Los Angeles, CA $25,778 $85,697 $2,185
6 Cambridge, MA $31,552 $82,363 $2,100
7 Washington, DC $37,120 $77,461 $1,975
8 Oakland, CA $27,841 $76,971 $1,963
9 Orange County, CA $25,778 $74,794 $1,907
10 Chicago, IL $25,778 $69,421 $1,770
Download the full dataset for the 25 largest U.S. rental markets here.

The Cliff’s Notes Of Rental Affordability
The lesson here for recent grads is that although it may be tempting to seek out metros with the highest wages, doing so may not necessarily lead to a better quality of life because these metros also have high rents.

Recent grads need to balance both wages and rents, so places like St. Louis, Dallas, and Houston, fit the bill for affordability. Although the percent of units in these areas that are affordable is under 19%, finding just one roommate is enough to make the median priced rental unit affordable. However, in places like Portland and Southern California, not only are affordable units few and far between, but it takes living in dorm-like quarters to make the median priced rental unit affordable.

0 comments

What Falling Oil Prices Mean for Home Prices

The recent plunge in oil prices could cause home prices to slip in the oil-producing markets of Texas, Oklahoma, Louisiana, and elsewhere. But it typically takes two years for oil prices to fully affect home prices in those markets. At the same time, lower oil prices could boost home values in the Northeast and Midwest.

Jed Kolko, Chief Economist
January 8, 2015

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. Here then is the scoop on where prices and rents are headed.

Asking Prices Slowed in December, Rising 0.5% Month-Over-Month

Nationwide, asking prices on for-sale homes were up 0.5% month-over-month in December, seasonally adjusted — a slowdown after larger increases in September, October, and November. Year-over-year, asking prices rose 7.7%, down from the 9.5% year-over-year increase in December 2013. Asking prices increased year-over-year in 97 of the 100 largest U.S. metros.

December 2014 Trulia Price Monitor Summary
% change in asking prices # of 100 largest metros with asking-price increases % change in asking prices, excluding foreclosures
Month-over-month,
seasonally adjusted
0.5% N/A 0.7%
Quarter-over-quarter,
seasonally adjusted
3.4% 87 3.7%
Year-over-year 7.7% 97 8.1%
Data from previous months are revised each month, so current data reported for previous months might differ from previously reported data.

Where and When Falling Oil Prices Will Hurt — Or Help — Home Prices

Four of the five markets where asking prices rose most year-over-year are in the South, including Atlanta, Cape Coral-Fort Myers, North Port-Sarasota-Bradenton, and Deltona-Daytona Beach-Ormond Beach. Of the top 10, four are in the Midwest, including Cincinnati, Detroit, Lake-Kenosha Counties, and Indianapolis. Among markets with the largest asking price increases, Houston stands out for having a large local oil industry, accounting for 5.6% of jobs there.

 

  Where Prices Increased Most in December
# U.S. Metro Y-o-Y % asking price change, Dec 2014 % of jobs in oil-related industries
1 Atlanta, GA 15.9% 0.3%
2 Cape Coral-Fort Myers, FL 15.5% 0.1%
3 North Port-Sarasota-Bradenton, FL 15.0% 0.1%
4 Cincinnati, OH 14.8% 0.1%
5 Deltona-Daytona Beach-Ormond Beach, FL 14.7% 0.1%
6 Oakland, CA 14.5% 0.4%
7 Houston, TX 13.4% 5.6%
8 Detroit, MI 12.9% 0.6%
9 Lake-Kenosha Counties, IL-WI 12.7% 0.1%
10 Indianapolis, IN 12.6% 0.2%
Note: among 100 largest metros. Employment in oil-related industries is from County Business Patterns, 2012 (see note at end of post). To download the list of asking home price changes for the largest metros: Excel or PDF.

metro map dec 2014

Only Bakersfield and Baton Rouge have an even higher employment share in oil-related industries than Houston. Oklahoma City, Tulsa, New Orleans, and Fort Worth round out the seven large metros where oil-related industries account for at least 2% of employment. It’s not until you look at smaller metros that you find oil-related industries representing a larger employment share. In Williston, ND, and Midland, TX, they account for almost 30% of local jobs.

oil country map dec 2014

On average, in the seven large metros where oil-related jobs are at least 2% of the total, home prices rose 10.5% year-over-year — faster than the 7.7% increase for the 100 largest metros overall.

Home Price Changes in Top Oil-Employment Markets
# U.S. Metro Y-o-Y % asking price change, Dec 2014 % of jobs in oil-related industries
1 Bakersfield, CA 12.4% 6.9%
2 Baton Rouge, LA 3.0% 6.1%
3 Houston, TX 13.4% 5.6%
4 Oklahoma City, OK 6.3% 4.3%
5 Tulsa, OK 10.1% 3.7%
6 New Orleans, LA 7.3% 2.6%
7 Fort Worth, TX 10.2% 2.5%
8 Gary, IN 7.3% 1.8%
9 Wichita, KS 5.3% 1.4%
10 Toledo, OH 10.2% 1.0%
Note: among 100 largest metros. Employment in oil-related industries is from County Business Patterns, 2012 (see note at end of post).

Oil prices have plunged from over $100/barrel in July 2014 to around $50/barrel in early January 2015, threatening oil-producing economies around the world. Within the U.S., big oil price drops have historically been associated with job losses and falling home prices in energy-producing regions. In particular, plummeting oil prices in the 1980s were followed by declines in employment and home prices in Houston, Oklahoma City, Tulsa, New Orleans, and other nearby markets.

We looked at year-over-year trends in oil prices, jobs, and home prices from 1980 to the present in the 100 largest metros and found that:

  1. In oil-producing markets, home prices tend to follow oil prices, but with a lag. For instance, in the 1980s, the largest year-over-year oil price declines were in early- and mid-1986. In Houston, job losses were steepest in late 1986. But home prices didn’t slide most until the third quarter of 1987. Since 1980, employment in oil-producing markets has followed oil-price movements roughly two quarters later and home prices have followed oil-price movements roughly two years later.
  2. While home prices and oil prices move in the same direction in oil-producing markets, they tend to move in the opposite direction in many other markets. Cheaper oil lowers the costs of driving, heating a home, and other activities, boosting local economies outside oil-producing regions. In the Northeast and Midwest especially, home prices tend to rise after oil prices fall. The specific markets where home prices get the biggest jolt depend on which years we analyze.

This history offers three lessons for today’s housing market. First, any negative impact of falling oil prices on home prices should be concentrated in oil-producing markets in Texas, Oklahoma, Louisiana, and other places with large oil-related industries. Second, in these markets, oil prices won’t tank home prices immediately. Rather, falling oil prices in the second half of 2014 might not have their biggest impact on home prices until late 2015 or in 2016. Third, falling oil prices will probably help local economies and home prices in markets that lack oil-related industries.

Rental Affordability Toughest in Miami, Los Angeles, and New York

Nationwide, rents rose 6.1% year-over-year in December. The least affordable rental markets are Miami, Los Angeles, and New York, where median rent for a two-bedroom unit eats up more than half of the local average wage. Rents are rising faster than the national average in the markets that are already the least affordable. The most affordable large rental markets are St. Louis, Phoenix, and Houston. Although Denver had the largest year-over-year increases, Denver rentals remain more affordable than those in most of the big coastal markets.

Rent Trends in the 25 Largest Rental Markets
# U.S. Metro Y-o-Y % change in rents, Dec 2014 Median rent for 2-bedroom, Dec 2014 Median rent for 2-bedroom as share of average local wage
1 Miami, FL 7.4% 2300 57%
2 Los Angeles, CA 7.0% 2450 53%
3 New York, NY 9.3% 3200 52%
4 Oakland, CA 11.6% 2400 45%
5 San Francisco, CA 10.8% 3600 45%
6 Riverside-San Bernardino, CA 5.0% 1500 44%
7 Orange County, CA 7.4% 2050 44%
8 San Diego, CA 4.1% 1950 42%
9 Cambridge-Newton-Framingham, MA 6.8% 2250 39%
10 Boston, MA 4.3% 2300 39%
11 Newark, NJ 7.1% 2100 37%
12 Chicago, IL 6.0% 1750 37%
13 Baltimore, MD 8.7% 1550 35%
14 Washington, DC 2.9% 2000 34%
15 Denver, CO 14.1% 1500 31%
16 Philadelphia, PA 7.5% 1500 31%
17 Seattle, WA 6.1% 1700 31%
18 Portland, OR 8.8% 1300 30%
19 Tampa-St. Petersburg, FL 7.5% 1100 29%
20 Dallas, TX 5.4% 1400 29%
21 Atlanta, GA 5.9% 1250 28%
22 Minneapolis-St. Paul, MN 3.2% 1300 28%
23 Houston, TX 3.1% 1400 27%
24 Phoenix, AZ 8.6% 1050 26%
25 St. Louis, MO 8.5% 900 22%
Note: average local wage is from the Quarterly Census of Employment and Wages for the year up to 2014 Q2.

The next Price and Rent Monitors are scheduled to be released on Tuesday, February 10.

Notes:

The share of jobs in oil-related industries is based on County Business Patterns, 2012. Oil-related industries include NAICS codes 211, 213111, 213112, 2212, 23712, 32411, 333132, 4247, 4861, 4862,and 48691; these cover oil and gas extraction, drilling, support operations, refineries, machinery construction, pipeline construction, and pipeline transportation. Nationally, 0.9% of jobs are in these oil-related industries. For counties where the exact industry employment level was suppressed for confidentiality reasons, we estimated employment based on the establishment size distribution.

To estimate the relationship among trends in oil prices, employment, and home prices, we identified the lags that yielded the highest correlations between the time series for individual metros. Because the results are sensitive to the time period analyzed and other assumptions, we are reporting only the broad results that hold under various assumptions.

This post (and future Trulia Trends posts) uses new government metropolitan area definitions, as explained in this FAQ.

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. 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.

0 comments

Housing’s Millennial Mismatch

Asking prices are rising faster in Gen X, boomer, and senior markets than in millennial markets. But there’s a mismatch in where young adults live versus where they can afford to buy a home. For many millennials, homeownership will require moving to a cheaper market.

Jed Kolko, Chief Economist
December 9, 2014

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.

Asking Prices Accelerated in November, Rising 7.4% Year-over-Year

Nationwide, asking prices on for-sale homes jumped 1.5% month-over-month in November, seasonally adjusted — a surprisingly large increase. Future months will tell whether this was a blip or the beginning of a sustained climb. Year-over-year, asking prices rose 7.4%, down from the 10.3% year-over-year increase in November 2013. Asking prices rose year-over-year in 98 of the 100 largest U.S. metros — everywhere but Little Rock and New Haven.

November 2014 Trulia Price Monitor Summary
% change in asking prices # of 100 largest metros with asking-price increases % change in asking prices, excluding foreclosures
Month-over-month,
seasonally adjusted
1.5% N/A 1.6%
Quarter-over-quarter,
seasonally adjusted
3.4% 95 3.5%
Year-over-year 7.4% 98 7.3%
Data from previous months are revised each month, so current data reported for previous months might differ from previously reported data.

Prices Rising Fast in Florida, Slowest in Favorite Millennial Markets

Four of the 10 metros where asking prices rose most year-over-year were in Florida. These Sunshine State markets have older populations, and they all have a lower share of millennials than the national average of 21% and a higher share of baby boomers than the average of 24%. In fact, only one of the 10 markets with the largest price increases in November has a higher share of millennials than the national average—and only slightly (Las Vegas, at 22%).

Where Prices Increased Most in November
# U.S. Metro Y-o-Y % asking price change, Nov 2014 % of population age 20-34 (Millennials) % of population age 50-69 (Boomers)
1 Ventura County, CA 17.2% 20% 24%
2 Palm BayMelbourneTitusville, FL 15.2% 16% 30%
3 North PortBradentonSarasota, FL 14.7% 14% 30%
4 Oakland, CA 13.4% 21% 24%
5 Cincinnati, OH-KY-IN 13.4% 20% 25%
6 Cape CoralFort Myers, FL 13.3% 16% 29%
7 LakelandWinter Haven, FL 13.0% 18% 25%
8 Las Vegas, NV 12.9% 22% 23%
9 Detroit, MI 12.9% 20% 25%
10 Atlanta, GA 12.9% 21% 22%
National average 7.4% 21% 24%
Note: among 100 largest metros. Population shares based on 2013 Census population estimates. To download the list of asking home price changes for the largest metros: Excel or PDF

metro map nov 2014

To see how the age distribution of a metro’s population relates to home prices, we identified the 10 markets with the highest shares of each of four distinct generations: millennials (age 20–34); Gen X (age 35–49); boomers (age 50–69); and seniors (age 70 and up). (See note.) In the 10 markets where millennials account for the largest share of the population, including Austin, San Diego, and Virginia Beach-Norfolk, the average year-over-year price increase was 6.1% — below the 7.4% national increase. Markets with the highest shares of Gen Xers, including Raleigh, San Francisco, and San Jose, averaged price increases of 9.4% — highest among the four age groups. Prices in the favorite markets of seniors, most of which are in Florida, rose 8.6% — also above the national increase.

GenerationalHomePrices

The Millennial Mismatch in Housing Affordability

When young adult renters are asked if they will buy a home someday, a whopping 93% say yes. You’d think it would be good news for them that prices are rising more slowly in the markets where they currently live. Not so fast though. Prices might be rising more slowly in millennials’ favorite metros. But affordability is nonetheless a big challenge in those markets.

To see this, compare the millennial population share in each metro with the percentage of homes for sale that a typical millennial household can afford (from our most recent Middle Class Affordability report — see note below on how we define affordability). In metros with higher millennial shares, homeownership tends to be less affordable for this group. For instance, in Austin, Honolulu, New York, and San Diego, 20–34 year-olds account for at least 23.5% of the population, putting those metros in the top 10 for millennial share. But fewer than 30% of homes for sale in those markets are within reach of the typical millennial household. Some markets with a high millennial share are more affordable, including Oklahoma City and Baton Rouge, but they’re the exception (see note).

LiveVsAfford[2]

Call it the “millennial mismatch.” Millennials can afford markets where they don’t live, but they can’t afford many of the markets where they do live. Many millennials who hope to buy someday will be priced out of the market where they live now. They’ll face a tough choice: Do they keep renting or move to a cheaper market?

Rents Gains Easing Slightly in Most Large Markets

Rents continued to climb. Nationwide, rents rose 6.1% year-over-year in November. Still, rent gains have cooled since August in 14 of the 25 largest rental markets, including the Northern California markets of San Francisco, Oakland, and Sacramento. In November, Denver had the steepest increases in the country, though the typical two-bedroom unit there still rents for less than half of what it would cost in San Francisco or New York. But rent increases could slow next year if new apartment construction finally catches up with demand.

Rent Trends in the 25 Largest Rental Markets
# U.S. Metro Y-o-Y % change in rents, Nov 2014 Y-o-Y % change in rents, Aug 2014 Median rent for 2-bedroom, Nov 2014
1 Denver, CO 14.2% 12.7% 1550
2 San Francisco, CA 12.2% 13.4% 3600
3 Oakland, CA 11.9% 14.3% 2450
4 Baltimore, MD 9.3% 8.1% 1550
5 Phoenix, AZ 8.5% 8.1% 1050
6 New York, NY-NJ 8.3% 5.4% 3400
7 Sacramento, CA 8.2% 13.4% 1200
8 Portland, OR-WA 7.8% 3.5% 1300
9 Philadelphia, PA 7.5% 9.2% 1550
10 TampaSt. Petersburg, FL 7.4% 5.5% 1150
11 Miami, FL 7.3% 9.0% 2300
12 Los Angeles, CA 7.3% 8.2% 2500
13 Seattle, WA 7.3% 8.5% 1750
14 Orange County, CA 7.3% 4.7% 2100
15 St. Louis, MO-IL 7.3% 6.3% 950
16 Las Vegas, NV 6.5% 5.4% 950
17 Chicago, IL 5.9% 7.2% 1700
18 RiversideSan Bernardino, CA 5.8% 6.1% 1550
19 Dallas, TX 5.7% 4.5% 1400
20 Atlanta, GA 5.6% 7.5% 1200
21 Houston, TX 4.2% 4.2% 1400
22 San Diego, CA 4.0% 6.5% 2000
23 Boston, MA 3.8% 4.5% 2300
24 Washington, DC-VA-MD-WV 3.4% 3.6% 2000
25 Minneapolis-St. Paul, MN-WI 1.8% 1.7% 1300
Note: among 100 largest metros. Population shares based on 2013 Census population estimates. To download the list of rent price changes for the largest metros: Excel or PDF

Note: Data on share of metro population in each age group are from the Census’s 2013 county population estimates. Because the Census reports county population estimates by age in 5-year buckets (20–24, 25–29, etc.), we defined the four age groups as 20–34 (millennials), 35–49 (Gen X), 50–69 (boomers), and 70+ (seniors).

The correlation for the data shown in the scatterplot between millennial share and homeownership affordability for millennials is -0.28 (-0.48 when weighted by metro number of households), which is statistically significant at the 5% level.

We measure affordability as the share of homes for sale on Trulia within reach of the typical millennial household. Our standard is whether the total monthly payment, including mortgage, insurance, and property taxes, is less than 31% of the metro area’s median income for households headed by millennials. The total monthly cost includes the mortgage payment assuming a 4.2% 30-year fixed rate mortgage with 20% down, property taxes based on average metro property tax rate, and insurance. We chose 31% of income as the affordability cutoff to be consistent with government guidelines for affordability.

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. 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.

0 comments

Housing in 2015: Consumers Upbeat, but Recovery Faces a Tricky Handoff

Consumers think 2015 will be a better year than 2014, especially for selling a home. But the recovery will slow as the rebound effect fades before fundamentals become strong. Key markets to watch are in the Northeast, South, and West.

Jed Kolko, Chief Economist
December 3, 2014

What does 2015 have in store for the housing market? Nine years after the housing bubble peaked and three years after home prices bottomed, the boom and bust still cast a long shadow. None of the five measures we track in our Housing Barometer is back to normal yet, though three are getting close. The rebound effect drove the recovery after the bust, but is now fading. Prices are no longer significantly undervalued and investor demand is falling. Ideally, strong economic and demographic fundamentals like job growth and household formation would take up the slack. But the virtuous cycle of gains in jobs and housing is relatively weak, and that will slow the recovery in 2015. All the same, consumers are optimistic, according to our survey of 2,008 American adults conducted November 6-10, 2014.

Consumers Expect 2015 To Be Better, Especially for Selling a Home

Consumers are as optimistic about the housing market as at any point since the recovery started. Nearly three-quarters — 74% — of respondents agreed that home ownership was part of achieving their personal American Dream – the same level as in our 2013 Q4 survey and slightly above the levels of the three previous years. For young adults, the dream has revived: 78% of 18-34 year-olds answered yes to our American Dream question, up from 73% in 2013 Q4 and a low of 65% in 2011 Q3.

AmericanDream

Furthermore, 93% of young renters plan to buy a home someday. That’s unchanged from 2012 Q4 despite rising home prices and worsening affordability.

Which real estate activities do consumers think will improve in 2015? All of them – but especially selling. Fully 36% said 2015 will be much or a little better than 2014 for selling a home. Just 16% said 2015 will be much or a little worse, a difference of 20 percentage points. The rest of the respondents said 2015 would be neither better nor worse, or weren’t sure. More consumers said 2015 will be better than 2014 for buying too. But the margin over those who said 2015 will be worse was not as wide.

BetterorWorse

Despite this optimism, barriers remain to homeownership. Saving for a down payment is still the highest hurdle, as it was last year, followed by poor credit and qualifying for a mortgage. Not having a stable job has become considerably less of an obstacle, dropping to 24% this year compared with 36% last year thanks to the recovering job market. But affordability has become a bigger obstacle. Some 32% of respondents cited rising home prices, compared with 22% last year.

BiggestObstacle

Housing Recovery in 2015: Rebound Effect to Fade Before Fundamentals Can Take Over

Different engines power each stage of the housing recovery. During the early years – roughly 2012 to 2014 – the rebound effect drove the recovery. Investors and other buyers scooped up undervalued homes and took advantage of foreclosures and short sales, boosting overall sales volumes. Local markets hit hardest in the housing bust posted the largest price rebounds. Now, though, the rebound effect is fading. Price levels and price changes are both approaching normal, foreclosure inventories are dwindling, and investors are pulling back. This is inevitable as the market improves and therefore shifts to slower, more sustainable price increases and a healthier mix of home sales.

So what replaces the rebound effect in the next stage of the housing recovery? The market increasingly depends on fundamentals such as job growth, rising incomes, and more household formation. But here’s the hitch: These fundamental drivers of supply and demand haven’t returned to full strength. They aren’t able to fully take the reins from the rebound effect. Importantly, the share of young adults with jobs is still less than halfway back to normal, many young adults are still living with their parents, and income growth is sluggish. This points to a tricky handoff, and means housing activity in 2015 might disappoint by some measures, though the rental market will remain vigorous.

Here’s what we expect:

  • Price gains slow, but affordability worsens. Price gains slowed in 2014 and we’ll see more of the same in 2015. In October 2014, prices increased4% year-over-year, down from 10.6% in October 2013. The slowdown has been especially sharp in metros that had a severe housing bust followed by a big rebound. Now, prices nationwide are just 3% undervalued relative to fundamentals. That leaves fewer bargains and scant room for prices to rise without becoming overvalued. What’s more, with consumers expecting 2015 to be a better year to sell than 2014, more homes should come onto the market, cooling prices further. Nevertheless, despite slowing price gains, home-buying affordability will worsen in 2015 for two reasons. First, even these smaller price increases will almost surely outpace income growth. In 2013, incomes rose just 1.8% year-over-year in nominal terms, and a negligible 0.3% after adjusting for inflation. Second, the strengthening economy and the Fed’s response should push up mortgage rates.
  • The rental market will keep burning bright. Next year will see strong rental demand and lots of new supply. The demand will come from young people leaving homes belonging to parents or roommates and renting their own places. Until now, they’ve been slow to leave the nest. But the 2014 job gains for 25-34 year-olds should lead to the rise in household formation we’ve been waiting years for. At the same time, the 2014 apartment construction boom will mean more supply in 2015 since multi-unit buildings take about a year to build. Will rent gains slow? Probably – provided that this new supply keeps up with formation of renter households. This surge of renters will probably cause the homeownership rate to fall. To be sure, the ranks of homeowners will probably rise. But an even larger number of young adults will enter the housing market as renters.
  • Single-family starts and new home sales could disappoint. While apartment construction is breaking records, single-family housing starts and new home sales are still not much better than half of normal levels. They’ll improve in 2015, but not as much as we’d like. Our consumer survey suggests more people will try to sell existing homes. That would add to the supply on the market and possibly reduce demand for new homes. Also, the strongest source of housing demand will be young people getting jobs and forming households. But they’ll be moving into rentals and saving for a down payment rather than buying homes right away. Finally, the vacancy rate for single-family homes is still near its recession high, which discourages new construction. The apartment construction boom shows that where there’s demand, builders will build. But buyer demand for single-family homes simply hasn’t recovered enough to support near-normal levels of single-family starts or new home sales.

If these predictions for 2015 sound similar to our predictions for 2014, you’re right. As the rebound effect fades and fundamentals take over, the recovery gets slower and the market starts to look more similar from one year to the next. But there’s good news here. Even though the recovery remains unfinished, the housing market is becoming more stable and more certain for buyers, sellers, and renters.

Markets to Watch in 2015

As the rebound effect fades, our 10 markets to watch have strong fundamentals for housing activity. These include solid job growth, which fuels housing demand, and a low vacancy rate, which spurs construction. We gave a few extra points to markets with a higher share of millennials. These young adults are getting back to work and that will drive household formation and rental demand. We didn’t include markets where prices looked at least 5% overvalued in our latest Bubble Watch report. Here are our markets to watch, in alphabetical order:

  1. Boston, MA
  2. Dallas, TX
  3. Fresno, CA
  4. Middlesex County, MA
  5. Nashville, TN
  6. New York, NY-NJ
  7. Raleigh, NC
  8. Salt Lake City, UT
  9. San Diego, CA
  10. Seattle, WA

 

MarketstoWatch

These markets are spread across the country: Boston, Middlesex County (just west of Boston), and New York in the Northeast; Dallas, Nashville, and Raleigh in the South (the Census considers Texas part of the South); and Fresno, Salt Lake City, San Diego, and Seattle in the West. No Midwestern metros make the list because they generally have slower job growth and higher vacancy rates than other markets, even though many are quite affordable and prices are rebounding.

In 2015, more markets will settle back into their long-term housing patterns. Fast-growing markets that boomed last decade, collapsed in the bust, and then rebounded are now leveling off. Even the markets that have been slowest to recover and have struggled longest are seeing foreclosure inventories decline and the sales mix moving back toward normal.

At the same time, first-time homeownership, single-family starts, and new home sales won’t come close to fully recovering in 2015. But if 2015 brings strong job growth, big income gains, and the long-awaited jump in household formation, then 2016 could be the year when we see a major turnaround in homeownership and single-family construction.

0 comments