Real Estate Data for the Rest of Us

What The Home-Price Slowdown Really Looks Like

The current slowdown of home prices has been sharpest in markets that crashed during the bust and bounced back last year. And although asking-price gains have been slowing since last spring, price increases remain high by historical standards.

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

Asking-Price Gains Have Been Slowing Down Since April 2013
Nationally, asking home prices rose 10.4% year-over-year in February 2014, down slightly after peaking in November 2013. But the year-over-year change is an average of the past twelve months and therefore obscures the most recent trends in prices. Looking at quarter-over-quarter changes instead, it’s clear that price gains have been slowing for most of the last year: asking home prices rose just 1.9% in February – a rate similar to those recorded in January and December – compared with increases near 2.5% from July 2013 to November 2013 and over 3% from April 2013 to June 2013. The quarter-over-quarter change in asking prices topped out at 3.5% in April 2013 and now, at 1.9%, the increase is just over half of that peak.

But even with this slowdown in gains, prices are still rising much faster than the historical norm. The quarter-over-quarter increase in February of 1.9% implies an annualized rate of almost 8% – which is well above the long-term average.

TruliaPriceMonitor_LineChart_Feb2014

February 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

0.9%

Not reported

0.9%

Quarter-over-quarter,
seasonally adjusted

1.9%

87

1.8%

Year-over-year

10.4%

97

9.8%

* Data from previous months are revised each month, so data being reported now for previous months might differ from previously reported data.

… continue reading

0 comments
Buying a Home 38% Cheaper Than Renting – But How Risky Is It? Visualization Preview

Check out the full infographic

Buying a Home 38% Cheaper Than Renting – But How Risky Is It?

Though the gap is narrowing, buying costs less than renting in all 100 large U.S. metros. But uncertainty about future home price appreciation means buying isn’t always a safe bet.

Jed Kolko, Chief Economist
February 26, 2014

Homeownership remains cheaper than renting nationally and in all of the 100 largest metro areas. Rising mortgage rates and home prices have narrowed the gap over the past year, though rates have recently dropped and price gains are slowing. Now, at a 30-year fixed rate of 4.5%, buying is 38% cheaper than renting nationally, versus being 44% cheaper one year ago.

The rent versus buy math is different in each local market. Buying ranges from being just 5% cheaper than renting in Honolulu to being 66% cheaper than renting in Detroit. But even for a specific market, the cost of buying versus renting depends on how much home prices rise (or fall) after you buy. Our model assumes conservative home price appreciation, but – as we all know after the last decade – home prices can unexpectedly rocket or plummet. This edition of Trulia’s Rent vs. Buy Report focuses on how different home price assumptions can affect the math for someone deciding to buy or rent today.

Our interactive Rent vs. 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.  To personalize the decision fully, Trulia’s Rent vs. Buy Calculator lets you compare the cost of renting and buying based on whatever assumptions and scenarios you like.

This report, our map, and our calculator are all powered by the same math, which includes these five 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 and for rent from December 2013 through January 2014. We estimate prices and rents for similar homes in similar neighborhoods in order to get a direct apples-to-apples comparison. We are NOT just comparing the average rent and  price of homes on the market, which would be misleading since rental and for-sale properties are very different: most importantly, for-sale homes are roughly 50% bigger, on average, than rentals.
  2. Calculate the initial total monthly costs of owning and renting, including the mortgage payment and rent, as well as 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 inflation.
  4. Factor in one-time costs and proceeds, like closing costs, down payment, sales proceeds, and security deposits.
  5. Calculate the net present value to account for opportunity cost of money.

To compare the costs of owning and renting, we assume buyers get a 4.5% mortgage rate on a 30-year fixed-rate loan with 20% down; itemize their federal tax deductions and are in the 25% tax bracket; and will stay in their home for seven years. Under these assumptions, buying is 38% cheaper than renting nationwide, taking into account all of the costs and proceeds from buying or renting over the entire seven-year period. The full methodology is available here.

Buying Beats Renting Until Mortgage Rates Hit 10.6%
Buying a home remains cheaper than renting in all of the 100 largest metro areas. Even though prices increased sharply in many markets over the past year, low mortgage rates have kept homeownership from becoming more expensive than renting. Also, in some markets, like San Francisco and Seattle, rents have risen sharply; rising rents hurt affordability relative to incomes, but rising rents make buying look cheaper in comparison.

The rent-versus-buy math differs across metros mostly because each local market has its own normal level of prices and rents, but also because property taxes and home-price appreciation differ in individual markets as well. Taking all these factors into account, buying ranges from just 5% cheaper than renting in Honolulu to 66% cheaper than renting in Detroit. Generally, buying is a tougher call relative to renting in California and New York, while the gap is largest in the Midwest and South.

Will renting become cheaper than buying soon? Some markets might tip in favor of renting this year as prices continue to rise faster than rents and if – as most economists expect – mortgage rates rise, due both to the strengthening economy and Fed tapering. For each metro, we identified the mortgage rate “tipping point” at which renting becomes cheaper than buying, given current prices and rents. If rates rise, Honolulu would become the first metro to tip, at a mortgage rate of 5.0%. San Jose and San Francisco would also tip before rates reach 6%. But those are the extreme markets. Nationally, rates would have to rise to 10.6% for renting to be cheaper than buying – and rates haven’t been that high since 1989.

Where Buying a Home is a Tougher Call

# U.S. Metro

Cost of Buying vs. Renting (%),

Winter 2014

Cost of Buying vs. Renting (%),

Winter 2013

Mortgage Rate Tipping Point When Renting Becomes Cheaper Than Buying, Winter 2014

1 Honolulu, HI

-5%

-23%

5.0%

2 San Jose, CA

-9%

-24%

5.4%

3 San Francisco, CA

-13%

-19%

5.8%

4 Orange County, CA

-21%

-32%

6.8%

5 New York, NY-NJ

-22%

-26%

7.2%

6 Oakland, CA

-24%

-40%

7.2%

7 Los Angeles, CA

-24%

-35%

7.3%

8 Ventura County, CA

-27%

-36%

7.6%

9 Albany, NY

-27%

-30%

9.0%

10 Austin, TX

-30%

-38%

9.2%

… continue reading

1 comment

Will Winter Weather Wobble Housing?

January’s polar vortex should knock construction and home sales activity down, but only by 1-2%. If sales, starts, or permits drop by more than that, don’t just blame the weather.

Jed Kolko, Chief Economist
February 18, 2014

If January construction and home sales data – which come out this week and next – show declines, the “polar vortex” will be prime suspect #1. But how much did January’s weather really affect housing? Last month, we showed that cold weather boosts online home searches, particularly for homes in warmer regions. On the flip side, construction and sales activity should decline in bad weather since many construction sites are unprotected from the outdoors, and sales depend on people braving the elements to go to open houses, signings, and the like. But does it?

To estimate how much January weather affected construction and sales, we looked back at more than a decade of weather and housing data. We calculated the historical relationship between abnormal weather (temperature and precipitation) and month-over-month changes in five types of housing activity (construction starts, construction permits, new home sales, existing home sales, and pending home sales) in each of the four regions (Northeast, Midwest, South, and West).

WinterWobble_sm

Did Housing Freeze Up Last Month?
Applying the historical patterns to last month’s actual temperature and precipitation shows that January weather probably contributed to a small decline in all five housing activities. The January month-over-month housing data coming out in the next two weeks should be 1-2% lower than it would have been if last month’s weather had been in line with January norms:

Housing activity

Predicted January weather effect

January data release date

Construction starts (Census)

-1.1%

2/19

Construction permits (Census)

-1.4%

2/19

Existing home sales (NAR)

-1.1%

2/21

New home sales (Census)

-2.1%

2/26

Pending home sales (NAR)

-1.3%

2/28

… continue reading

0 comments

The Rental Discount for Shacking Up

Nationally, renting a 2-bedroom apartment is 35% cheaper than two 1-bedroom apartments. Even a 3-bedroom apartment is 12% cheaper than two 1-bedroom apartments. But the discount for shacking up is smallest in New York and Dallas.

Jed Kolko, Chief Economist
February 10, 2014

It’s Valentine’s Day. Picture a romantic restaurant. Main course is finished. Lights are low. Your sweetheart leans over the table, and with a quiet voice, starts to speak. You prepare yourself for any possible conversation, playing each one out in your head. And then the question comes: “How much do you think we’ll save if we move in together?”

That might not be the romantic discussion you expected. But it’s an important one. Housing costs and economics affect whether people get roommates, live with their parents, or – yes – move in with their sweetheart. In general, living together saves money – but that depends on how many bedrooms you upgrade to and where you live.

To find out exactly what the cost tradeoffs are, we used rental listings on Trulia to calculate how much you’d save if you and your sweetheart traded in your separate 1-bedroom apartments and moved into a 2-bed or even a 3-bed unit. For this analysis, we did not simply compare median rents for 1-bed, 2-bed, and 3-bed apartments, because that would not be an apples-to-apples comparison: apartments with more bedrooms might be in different neighborhoods, have more amenities, or be in better-maintained buildings. Instead, we compared units in the same apartment building, calculating the average price difference by number of bedrooms for apartments within a building (see note below).

Trulia_HowLoveSavesMoney_Infographic

Love Can Save You 35% on Rent
Nationally, a 2-bedroom apartment rents for 30% more, on average, than a 1-bedroom in the same building. A bit of math reveals that trading in two 1-bedroom apartments for a 2-bedroom would save you 35% on rent. That makes sense: Renting a 2-bedroom should be less than renting two 1-bedrooms since the total number of bedrooms stays the same but you merge into one kitchen and maybe even one bathroom.

What’s more surprising is that you’d even save on housing costs by trading in two 1-bedroom apartments for a 3-bedroom. Nationally, a 3-bedroom apartment rents for 75% more, on average, than a 1-bedroom in the same building. That means if you traded in two 1-bedroom apartments for a 3-bedroom, you’d still save 12% on housing – and you and your sweetie would have a bedroom to share and a spare room each.

… continue reading

0 comments

5 Truths of Tech-Hub Housing Costs

This special edition of Trulia’s Price and Rent Monitors looks at affordability in housing markets with local tech industries. Prices today are 82% higher in tech hubs than in other large metros, but most of this gap existed before the modern Internet era. Furthermore, housing markets differ radically among tech hubs: the most affordable, Raleigh, costs one-fifth as much as San Francisco and has ten times as much new housing construction.

Jed Kolko, Chief Economist
February 6, 2014

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

Asking Prices Up 1.1% Month-over-Month in January
In January, asking home prices rose 1.1% month-over-month, the largest monthly gain since June 2013. But the quarter-over-quarter price increase of 2.1% remains below spring 2013 levels, when asking prices accelerated at their fastest rate in the recovery. Year-over-year, asking prices are up 11.4% nationally and are positive in 97 of the 100 largest metros.

TruliaPriceMonitor_LineChart_Jan2014

January 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

1.1%

Not reported

0.8%

Quarter-over-quarter,
seasonally adjusted

2.1%

84

1.8%

Year-over-year

11.4%

97

10.7%

*Data from previous months are revised each month, so data being reported now for previous months might differ from previously reported data.

… continue reading

0 comments