March 25, 2012

UPDATED: Trulia weighs in on Buy vs Rent by putting finger on the scale

120324-trulia-usamapTrulia has a new blog entry on the eternal Buy vs Rent question, and they have lots of meaningless aggregate data to wave around!  Here’s their Winter 2012 Rent vs Buy Index, and and it isn’t restricted to the Real Bay Area. 

Don’t be surprised that Trulia thinks signs point to Buy.  Their being in the listing information and real estate agent referral business shouldn’t have anything to do with their conclusion, right?  After all, Now is Always the Time to Buy!

120324-trulia-prr-graphRemember, the Index is the Price Rent Ratio: sales price divided by annual rent.  So, if a house in the RBA sold for $1.5 million, and rented for $4,500 a month, the rent ratio would be 1500000 / (4500 x 12).  That equation simplifies to 27.8, which sounds about right for the RBA.  Trulia considers 15-20 to be the swing zone between whether buying or renting is a better option; below 15 is buy and above 20 is rent.  We’ve written about the price rent ratio before, and 15 was always the inflection point mentioned in these articles, not 15-20.

Update 10:26 AM: The swing zone was 15-20 from other sources, but the other sites and articles counseled renting over buying unless the home you were considering was an unusually good find.  Trulia considers the rent vs. buy decision as completely balanced when the ratio is between 15-20.  That’s the thumb on the scale.

120324-trulia-logoTrulia is pushing their own agenda with this redefinition of terms by asserting a higher ratio for the buy zone.  The lack of yellow on the map above could indicate homes are more affordable, or it could show that the unlabeled color key breakpoints were chosen incorrectly.  Perhaps they simply wanted the map to match their brand color.

Now for some bad news. The Bay Area appears at #2 and #4 on Trulia’s list of least buy-friendly metro areas. It’s always a disappointment to not first on a list.

120324-trulia-most-expensive

At least SF beat NYC this time, but they’re going to gripe that was because New Jersey pulled them into the Hudson like a pair of cement overshoes.  We can counter that SF has the East Bay to contend with, and San Jose has, well, East San Jose. 

Here’s a little bit more breakdown, by county, but this still doesn’t get to the city level, let alone by zip code. 

120324-trulia-bayarea

Look, Pacific Heights is going to have a higher rent ratio than the Outer Sunset.  Palo Alto is going to completely clean Gilroy’s clock.  Foster City will stomp Daly City, Montclair mauls Hayward, and Danville going to defeat Discovery Bay in the “mine’s bigger” sweeps.  Even when outside the RBA, we still have an idea which places would be contenders, and which are permanently assigned to LOLsville.  And it’s the Definitely Not In The RBA places that are going to have the lower ratios.

Here are some other metros that score lower on the Index.

120324-trulia-least-expensive

The same rule applies within the Bay Area as well.  The not-so-Special places that are “slow-growing with high vacancy rates and land to spare” will have the best ratios.  These places also have the most foreclosures, which might explain why so many FBs are turning into renters themselves.  Too many foreclosures thus drive home prices down and rents up, resulting in a lower price rent ratio.  But in the RBA, prices are sticky because more owners can afford to wait out the price lulls.

These ratios are much lower than what we’d been seeing before.  Do you agree that prices are down and/or rents are up where you live?  Here’s what Trulia has to say about how the Index has changed recently: San Jose has been stable but San Francisco is dropping. 

Updated 11:14 AM: Added Oakland, Sacramento and Fresno to the table.  Note how the numbers don’t agree with those in the Bay Area table.  Stockton not called out separately.

Metro Winter 2011 Spring 2011 Summer 2011 Fall 2011 Winter 2012
San Jose 14.8 13.6 14.5 14.3 14.5
San Francisco 19.5 16.9 17.2 17.4 15.5
Oakland 12.8 11.0 11,9 11.7 11.6
Sacramento 11.2 10.4 10.0 11.1 9.9
Fresno 7.5 7.5 7.8 8.1 7.9

San Jose Metro also has the second lowest vacancy rate (3.9%) of the 100 regions surveyed. The “winner” is Long Island, NY, by one tenth of a percentage point. It’s also the third highest in growth in the employment rate, at 3%.  In the first two spots are Louisville, KY and Salt Lake City.  The latter is gearing up for a ginormous government data mining operation, so there may be some tech jobs!

Their  full press release on how they came up with these numbers is here.

Comments (7) -- Posted by: madhaus @ 5:07 am

7 Responses to “UPDATED: Trulia weighs in on Buy vs Rent by putting finger on the scale”

  1. SEA Says:

    Even with a price:rent ratio of 3.7, does anyone really think it’s a good idea to buy a house in Detroit?

  2. very amused Says:

    Here’s a little bit more breakdown, by county, but this still doesn’t get to the city level, let alone by zip code.

    Snort. You said zip code.

  3. Scott Says:

    Well I plan to rent until I can afford to move out of California to south Florida and buy a place and pay 20% down and have plenty of funds in the bank and a stable job/business where I can work from home. Bay area is too expensive to buy now until the market drops another 50%

  4. nomadic Says:

    #1, depends how long you plan to stay.

    Interesting note about vacancy rates in today’s feature. I read a recent article about new condo construction in SF that said vacancies were 3.2%.

  5. Petsmart groomer Says:

    > does anyone really think it’s a good idea to buy a house in Detroit?

    Of course it isn’t. One should buy where the ratio is high. This is how you earn respect.

  6. madhaus Says:

    >> does anyone really think it’s a good idea to buy a house in Detroit? >>

    Of course it isn’t. One should buy where the ratio is high. This is how you earn respect.

    Yes, one should buy where the ratio is high. That is the smart thing to do.

    nomadic, the problem with the Trulia data is they aren’t consistent with their definitions. The vacancy data is for SF Metro, not SF city, and for “SF” it’s 5.5%. Furthermore, I don’t even think this is SF SMSA (SF-Oakland-Fremont) because Oakland is called out seperately on the chart (5.9%). So is SF just SF/Marin/San Mateo? Nobody knows because they never defined what’s in each metro. There could be a lot of apples vs horseapples here.

  7. SEA Says:

    #4- What duration would it take to make it better to buy? 10 years? 20 years? 100 years?


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