Buying generally
Nationally, buying a home is
Mortgage rates generally would have to jump to above 10% for renting to represent better value than buying, the San Francisco-based firm says.
However, a few key locales will be close to the tipping point if rates go past 5%. These include the San Francisco, San Jose and Honolulu metro areas.
Traditionally, New York is the country’s biggest mortgage market by some measures, then California, with the next most expensive houses in Hawaii. Seven California metro areas are on the list of the top 10 places about to tip, and greater New York is midway down the list.
Trulia’s latest “rent versus buy” report is still good news for lenders, chief economist Jed Kolko stressed.
“It’s far from a tipping point, nationally,” he said in an interview following Trulia’s press conference in New York this fall.
Tight credit is a greater concern than rising interest rates, Kolko says, adding, “The hope is as rates rise, there’s much less refi demand so banks will open up [new-lending] capacity.”
Property supply is tight because an exceptionally high number of vacant properties are unlisted and new construction is “well below” normal.
These are factors in a home price recovery to just 5% below the long-term norm, nationally, he says.
Rates are still “very low compared to historical norms,” Kolko emphasized in his presentation.
Trulia’s summer 2013 report is the latest since the spring rate spike. Its winter 2013 report, for the three months ending Feb. 28, found buying was then 44% cheaper than renting. The current 35% differential reflects changes in the data for the three months ended Aug. 31.
Trulia looks at all the properties in its database (4.5 million) then isolates those that allow for an apples-to-apples comparison to establish whether buying or renting is more affordable, Kolko says.
Rental properties typically are smaller than purchase properties, for example.
The new calculator Trulia released to consumers recently uses the same methodology as its “rent versus buy” reports.
It factors in, at its simplest, the cost of actual rent and home purchase, the mortgage rate and tax bracket applicable to that consumer, and how long they plan to live in the home.
The resulting 35% nationwide cost advantage of buying assumes a 20% downpayment, a seven-year stay, and a 25% tax rate for a consumer making an itemized return.
Consumers will be able to modify their particulars and zone in on a particular neighborhood. Everything from crime reports to forest-fire risk gets factored into Trulia’s real estate listing information.
Trulia’s has had addition capital resources available for expanded mortgage services since its initial public offering a year ago on Sept. 20.
“We also have an emerging mortgage business, which will find a lot more scale in 2014,” Trulia co-founder and chief executive Pete Flint says.
“We don’t foresee that [becoming a lender],” he adds. “We’re a technology and software company.”
Trulia, established in 2005, introduced a mortgage referral service about a year ago.
“We’re helping consumers with information and also working with lenders and rate aggregators to provide rate tables and lead generation,” Flint says.
Users of Trulia’s site opt to be contacted by lenders, brokers and agents, he says.
