Honolulu and San Francisco Bay Area Will Tip In Favor Of Renting If Mortgage Rates Hit 6 Percent
SAN FRANCISCO, February 26, 2014 – Trulia (NYSE: TRLA), a leading online marketplace for home buyers, sellers, renters, and real estate professionals, today released its Winter 2014 Rent vs. Buy Report, revealing whether buying a home is more affordable than renting in America’s 100 largest metropolitan areas.
Looking at homes for sale and for rent on Trulia between December 2013 and January 2014, this study compares the average cost of renting and owning for all homes on the market within a metro, factoring in all cost components including transaction costs, taxes, and opportunity costs. For the full report and methodology, see here.
Renting Will Beat Buying If Mortgage Rates Hit 10.6 Percent
Despite rising home prices, today’s low mortgage rates have kept homeownership from becoming more expensive than renting both nationally and in each of the 100 largest housing markets. In fact, mortgage rates would need to rise to 10.6 percent for renting to become cheaper than buying nationally – and rates haven’t been that high since 1989. However, some markets might tip in favor of renting this year if prices continue to outpace rents and if mortgage rates rise. Given current home prices and rents, Honolulu would tip at 5.0 percent, followed by San Jose and San Francisco.
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Top 5 Metros Where Buying a Home is a Tough Call |
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| # | U.S. Metro |
Cost of Buying vs. Renting (%), Winter 2014 |
Cost of Buying vs. Renting (%), Winter 2013 |
Mortgage Rate Tipping Point |
| 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% |
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Top 5 Metros Where Buying a Home is a No-Brainer |
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| # | U.S. Metro |
Cost of Buying vs. Renting (%), Winter 2014 |
Cost of Buying vs. Renting (%), Winter 2013 |
Mortgage Rate Tipping Point |
| 1 | Detroit, MI |
-66% |
-70% |
33.8% |
| 2 | Gary, IN |
-61% |
-63% |
21.8% |
| 3 | Birmingham, AL |
-58% |
-59% |
18.4% |
| 4 | Toledo, OH |
-58% |
-62% |
22.6% |
| 5 | Kansas City, MO-KS |
-58% |
-60% |
20.1% |
Note: Negative numbers indicate that buying costs less than renting. For example, buying a home in Detroit is 66 percent cheaper than renting in 2014. Trulia’s rent vs. buy calculation assumes a 4.5 percent 30-year fixed-rate mortgage with 20 percent down, itemizing tax deductions at the 25 percent bracket, seven years in the home, and conservative annual home-price appreciation assumptions ranging from 1.7 percent to 3.1 percent, depending on the metro. The mortgage rate tipping point is how high rates must rise before renting becomes cheaper than buying. Download the full rent vs. buy cost considerations for the 100 largest U.S. metros here: (PDF) or (Excel)
Where Homeownership Could Be A Big Gamble: California
Buyers during the housing bubble made big bets that home prices would continue to rise forever — and lost. With asking prices up 11.4 percent year-over-year nationally in January 2014, today’s buyers could fall into that same trap. So to help people consider the worst-case scenario, Trulia calculated the cost of renting vs. buying a home with the assumption that prices will appreciate or depreciate as they did during each local housing market’s worst seven-year period over the last 20 years. With this assumption, if the worst does happen, renting would become cheaper than buying in 37 of the 100 largest U.S. metros. For example, buying would become 79 percent more expensive than renting in San Jose if prices fell 2.8 percent annually. This is because even small differences in price appreciation can have a big effect on the future sales price of the home.
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Where Buying a Home Could Be the Riskiest Proposition |
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| # | U.S. Metro |
Cost of Buying vs. Renting (%), Winter 2014, assuming worst home-price scenario (Positive numbers mean buying is more expensive than renting) |
Annual appreciation in worst home-price scenario |
Start of Worst 7-Year Period |
| 1 | San Jose, CA |
79% |
-2.8% |
2005 Q4 |
| 2 | Oakland, CA |
75% |
-5.8% |
2005 Q4 |
| 3 | Orange County, CA |
71% |
-4.6% |
2006 Q1 |
| 4 | San Francisco, CA |
71% |
-2.5% |
2005 Q4 |
| 5 | Honolulu, HI |
67% |
-2.5% |
1992 Q3 |
| 6 | Ventura County, CA |
67% |
-5.9% |
2006 Q1 |
| 7 | Los Angeles, CA |
63% |
-4.8% |
2006 Q1 |
| 8 | Sacramento, CA |
63% |
-8.2% |
2005 Q3 |
| 9 | Las Vegas, NV |
53% |
-11.1% |
2005 Q4 |
| 10 | San Diego, CA |
53% |
-5.3% |
2005 Q4 |
Note: This table assumes annual home-price appreciation equal to the worst seven-year period in the past 20 years for each metro, using Federal Housing Finance Agency (FHFA) price data. Download the rent vs. buy cost considerations for the 100 largest U.S. metros, assuming their worst home-price scenarios here: (PDF) or (Excel)
PRE-APPROVED QUOTES
- “Buying remains cheaper than renting across the country even after 2013’s big price rebound,” said Jed Kolko, Trulia’s Chief Economist. “Mortgage rates are still near historic lows, despite rising a point in the past year, and would be the envy of time travelers from the 1980s, 1990s, or 2000s. Even in markets like San Francisco where home prices are high relative to paychecks, buying costs less than renting for people who stay seven years and itemize their deductions.”
- “In many markets, the rent-versus-buy decision depends on the one factor you can’t control or perfectly predict: what happens to home prices after you buy,” said Jed Kolko, Trulia’s Chief Economist. “Sharp price appreciation could make homeownership essentially free, but price declines could mean that renting would have been the better deal in hindsight. The current home-price recovery could lull prospective buyers into thinking that future price gains are inevitable, but when doing the rent-versus-buy math, people should prepare for the worst, not just hope for the best.”
MULTIMEDIA
- View an interactive Rent vs. Buy Map illustrating how mortgage rates, tax deductions, and number of years in the home can affect the rent vs. buy decision
- Find out if renting or buying is a cheaper option for you with Trulia’s Rent vs. Buy Calculator
ABOUT TRULIA, INC.
Trulia (NYSE: TRLA) gives home buyers, sellers, owners, and renters the inside scoop on properties, places, and real estate professionals. Trulia has unique info on the areas people want to live that can’t be found anywhere else: users can learn about agents, neighborhoods, schools, crime, commute times, and even ask the local community questions. Real estate professionals use Trulia to connect with millions of transaction-ready buyers and sellers each month via our hyperlocal advertising services, social recommendations, and top-rated mobile real estate apps. Trulia’s Market Leader subsidiary delivers the leading end-to-end technology and marketing solutions that enable real estate professionals to grow and manage their businesses. Trulia is headquartered in downtown San Francisco. Trulia and the Trulia marker logo are registered trademarks of Trulia, Inc.For further information: Daisy Kong, [email protected], 831-710-1388