Trulia 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!

Remember, 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.

Trulia 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.

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. 

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.

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.

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.

Let’s have another buy vs rent thread with this latest News of the Obvious from what’s little is left of our local newspaper.

Bay Area rents, especially in Silicon Valley, are on the rise

By Pete Carey, San Jose Mercury News
Posted: 07/21/2011 12:01:00 AM PDT, Updated: 07/21/2011 10:07:26 AM PDT

Bay Area apartment rents are on the rise, fed by the contrasting economic forces of a booming tech recovery and the steady flow of foreclosures that is turning former homeowners into renters.

The San Jose metro area, which includes Silicon Valley, weighed in with the highest average rent — $1,759 a month — among 43 metro regions monitored by RealFacts, a Novato apartment rental research company that released a report on second-quarter rental prices Thursday. The region also saw the biggest year-over-year increase, up 12.6 percent.

The San Francisco metro area — encompassing the Peninsula, East Bay and Marin County — had the second-highest rents in the survey, at $1,644, and the third-highest year-over-year increase, at 7.6 percent.

Rents are a barometer of the region’s economic vitality and job market, and after several years of stagnation, this year they’re pointing to recent job market gains. But they also signal the continued weakness of the housing market, with stiff competition for rentals throughout the region.

Photo: SJMN

That opening paragraph observes that rent going up isn’t only driven by new jobs being created by tech firms: it’s also due to new renters being transformed from former homeloaners.  So what are you seeing where you live?  Are your new neighbors former owners who now rent, or former renters who can now own?  Is your firm hiring or cutting back?  Is rent going up where you live?  Are house rents going up as quickly as apartment lease rates?

If you want to get into the apartment rental business, you could look to East Palo Alto, where up to 1,800 rental units are about to change hands.  The current owner, Page Mill Properties, defaulted on a balloon payment, and Wells Fargo is looking to sell the entire portfolio.  East Palo Alto: Close to the new Facebook campus, plus rent control!

And while former homeowners may be looking to rent now, foreigners with suitcases full of cash are still buying up RBA property, supposedly.

Trulia, the online real estate information service, reports a big jump in searches for Silicon Valley real estate from other countries. Searches for property in Cupertino were up 90 percent in the first quarter of this year from a year earlier, Trulia reported. Palo Alto was up 121 percent; Los Altos Hills up 182 percent; Atherton up 68 percent and San Jose up 86 percent.

This is an Open Thread.

For Many Chinese Men, No Deed Means No Dates

By ANDREW JACOBS, New York Times, Published: April 14, 2011

(Photo, r. Gilles Sabrie for The New York Times.  A billboard promoting real estate in Beijing. Amid a real estate boom, men are finding themselves lovelorn as women hold out for a mate with property.)

BEIJING — In the realm of eligible bachelors, Wang Lin has a lot to recommend him. A 28-year-old college-educated insurance salesman, Mr. Wang has a flawless set of white teeth, a tolerable karaoke voice and a three-year-old Nissan with furry blue seat covers.

“My friends tell me I’m quite handsome,” he said in confident English one recent evening, fingering his car keys as if they were a talisman.

But by the exacting standards of single Chinese women, it seems, Mr. Wang lacks that bankable attribute known as real property. Given that even a cramped, two-bedroom apartment on the dusty fringe of the capital sells for about $150,000, Mr. Wang’s $900-a-month salary means he may forever be condemned to the ranks of the renting.

Last year, he said, this deficiency prompted a high-end dating agency to reject his application. In recent months, half a dozen women have turned down a second meeting after learning that he had no means to buy a home. “Sometimes I wonder if I will ever find a wife,” said Mr. Wang, who lives with his parents, retired factory workers who remind him of his single status with nagging regularity. “I feel like a loser.”

Who knew?  Wang Lin may feel like a loser, but as far as these women are concerned, he is one.

Look, Spring Bounce is here.  Do you feel a renter is a loser?  Or is that the case only in China?  Consider that in Japan, with its 20 years of deflation, most twentysomethings feel that buying nothing is the best strategy.  This NY Times article on the same subject was written before the devastating earthquake and tsunami, though.  Will the reaction against the conspicuous consumption of forty and fiftysomething Japanese continue through the national emergency?  Or will the youngsters rally and buy property for the good of the nation?

Well, how about this?  The National Association of Realtors feels they are fighting for survival now.  Doesn’t that make you want to run out and a buy another house so they can?

This is an open thread.  Share your thoughts on the above ideas, or any Open Houses you may visit, or anything you like.

Zillow, the website that brought you the Zestimate, now has a brand-new feature to make fun of.  We’ve all chuckled over how surprisingly off the Zestimate of a home’s value could be.  Well, in the words of Mr. Family Guy, “You think that’s bad?”

Zillow has just introduced the Rent Zestimate.  Yes, now we can compute the Zrent Zratio, using two estimates that may or may not have anything to do with reality!  Let’s try it with a few houses previously featured on Burbed!

Here’s Friday’s house, the Tangrams Set with the High-Tech name.  Once more, the Zestimate has no relation to real life, because if it did this place wouldn’t be sitting unclaimed for 113 days at $200K less than Zillow’s amazing valuation model’s prediction.  To compute the Zrent Zratio, divide the Zestimate by the annual Rent Zestimate.  For this house, $762,000 divided by ($3081 * 12) is 20.6, a number that says rent, don’t buy this house.  (A number above 15 says rent, a number below 15 says buy.)

Although I think the answer is really don’t rent or buy this house, so let’s try again with something a little more desirable.  So let’s stop and smell the roses.

Well, here’s a Zestimate a little more down to earth, as this Beautiful Specious Home is listed for $239,000.  The Zrent Zratio is $217,500 / (1345 * 12) or 13.5.  Buy!  Buy!  BUY!

And here’s our most recent run-in with MAWBUL CAWLUMS, it’s the Shrek House.

Ready?  Oh oh, this place has a Zestimate about 30% of the asking price.  I didn’t say 30% lower, I said it’s 30% of the asking price.  I’m sure the FBs will be happy to set Zillow straight on this.  And the Zrent Zratio is… $1,427,000 / (5587 * 12) = 21.3.  Rent.  Definitely rent.

Okay, now for grins, we’re going to compute the rent ratio using the wishing prices of all three homes, and Zillow’s Rent Zestimate.

• Poinsettia: $575,000 / (2979 * 12) = 16.1 (weak rent, buy it if you love it)
• Gibraltar: $217,500 / (1345 * 12) = 14.8 (buy or rent, it’s a wash)
• Butch: $4,999,000 / (5587 * 12) = 74.6 (rent rent rent rent rent rent are you kidding me?)

So, what do you think of Zillow’s new made up numbers?  Do any of these rents have anything to do with reality?  And if you divide one invented number by another, does the nonsense cancel itself out?

Reasons To Buy Now

Thanks to Burbed reader Alex for this find from Dr. Horton… I mean… D.R. Horton.

No Tax Deductions! Sweet! There’s nothing like getting a tax deduction for paying interest to a bank!

How would you rewrite this ad for Dr. Horton?

In case you were wondering if downtown San Jose needed more luxury condominium towers, looks like the answer is a big, fat no.  Thanks to Burbed reader sonarrat for alerting us to this story.

Struggling downtown San Jose condo tower to switch to rentals

By Joe Rodriguez, SJ Mercury News –  Posted: 02/02/2011 04:45:28 PM PST, Updated: 02/03/2011 08:34:16 AM PST

The Three Sixty Residences, a luxury condominium tower offering panoramic views of Silicon Valley, has done a 180-degree fizzle. The downtown San Jose project will become a rental apartment building.

Condos or rentals, who cares?

That’s how downtowners feel after waiting years for four large condominium projects to dump thousands of new residents onto sidewalks and into coffee houses, restaurants and retail shops. So far, sales at the projects are creeping along after the housing market tanked.

Thank heaven that nonsense is over.  The idea of building apartment towers and selling off the interior units one by one was a great way for developers to make money.  As long as real estate kept going up, it was even a great way for condo owners to make money.  However, the game of musical chairs came to a halt and a number of condo owners find themselves under water.  Units filled with renters, or even worse, units filled with nobody, means the condo lifestyle isn’t at all what they imagined.  Homeowner fees climb even faster when not everyone is paying them.

So take a look at this diagram from the article.  How did The Three Sixty manage to not sell a single condo if they used to have 90 of them under contract?  Did they just cancel them all?  Did the would-be owners get their deposits back?

And do you see what’s wrong with this picture?  Actually what’s wrong is the statistics.  We don’t care how many floors versus sold units there are in each building.  What’s important is how many units didn’t sell, because that would tell us how well these other three projects are doing.  Or, more likely, how not well.

Edward Tufte, where are you and why aren’t you publicly calling out the graphic designer for this image?

Since the Merc didn’t bother to tell you what you need to know, we will.  Here is how well each of the four major downtown high-rise condominium projects have sold.

And an even more important thing you need to know: Three Sixty Residences has been featured in Burbed, back when there were units for sale. So much for “finally got a piece of the pie.” Only owners get pie.  Renters just get to sniff it coming out of the oven.

The solution?  Make the pie higher!

Trulia has yet another view of the perpetual Rent versus Buy debate, and they’ve got lots of colored bubbles to help.  Bubbles are great.  They lead to high housing prices and if you own the house, you get to paint it any color you want (as long as you don’t live in a fascist HOA community).

The map at right is from Trulia’s Rent vs Buy tool.  The rent ratio is calculated by comparing the median list price of a 2 bedroom condo or townhouse listed on Trulia to the average monthly rent, for the 50 largest cities in the United States.

You see the problem right away, don’t you?  2 bedroom condo or townhouse.  Excuse me, but who the heck wants to buy a 2 bedroom condo or townhouse?  Maybe some of us have to (if we want to own anything), but for those who can buy a single-family detached house, the ratio we want is the cost versus the rent of a three bedroom, two bath house with a yard.  Those are difficult to find in San Francisco, and almost nonexistent in New York City, but for everywhere else, such a thing is not only possible but highly desired.

So who cares if Trulia says San Jose has a price to rent ratio of 15 (which puts it right over the line for the BUY column)?  That means BUY don’t rent the condo.  The question is whether to buy the house, and they aren’t helping with that decision.

Here are Trulia’s Rent vs Buy numbers for some cities of interest.  Remember, under 15 means buy, over 20 means rent, and in between, it depends.  Maybe that means live somewhere else.

City	Avg List Price	Avg Rent	Price to Rent Ratio
Fresno	$90,446	$936	8
Sacramento	$152,696	$934	14
Oakland	$278,245	$1,625	14
San Jose	$298,621	$1,691	15
Los Angeles	$491,055	$2,460	17
San Diego	$396,409	$1,670	20
San Francisco	$774,728	$2,996	22
Portland	$307,858	$1,145	22
Seattle	$461,330	$1,546	25
New York City	$1,383,612	$3,538	33

The biggest surprises on the full list?  Omaha, at 26 and Fort Worth at 30, although Trulia notes the Fort Worth sample size was insufficient. These numbers don’t show whether attached housing is seen as a city norm or not, and if not, at what discount does attached housing go for compared to detached.  I suspect the odd results for Omaha and Fort Worth are for that very reason.  There may be so few attached units that the results are meaningless.

So where does San Jose fit on the scale of urban to suburban?  Given the name of this website, perhaps San Jose house price rent ratios are in the thirties.

Have you made a list of New Year’s resolutions?  That’s a difficult, painful, and ultimately pointless task, because few people keep them for long.  It’s far more effective to make resolutions for what other people should do. So here are some 2011 resolutions for Burbed readers.

• Visit at least ten open houses this year – This is a good idea for several reasons.  One, if you want to become a homeowner, you need to start thinking like one.  Two, the more homes you visit, the better you will become at telling a bargain from a disaster.  And three, if the place you visit is an absolute piece of crap, you can send it in to Burbed so we have more material.
• Take a real estate class – Real estate is a fascinating field, with its own language, customs, paperwork and buzzwords.  Not only will you learn something about the homebuying process, you will be able to pepper your Burbed comments with useful phrases such as “leverage” and “negative equity.”
• Choose a trade-up area – Even if you already own a home, there’s probably someplace more Special than where you live.  Find one of those places and learn about it.  Follow new listings that appear from your designated “new” neighborhood.  Figure out how much it will take to trade to this new neighborhood and then justify your staying put in comments.
• Create your home budget – Calculate how much discretionary income you have.  Take your gross paycheck, subtract all required payments out such as taxes, utilities, coffee and sushi.  You can list discretionary expenses such as clothing and movie money, but don’t include them in your budget.  Is your number positive?  Take the rent out too. Once you buy a home you won’t be paying rent to a landlord anymore when you can rent your money from a bank!
• Determine how much home you can afford – Did you create your budget in the previous resolution?  Of course you didn’t.  Why don’t you go back and do that one for real?
• Make an offer – Learn about the homebuying process by working with an agent, visiting homes, and submitting an offer to buy property.  The key to not having to actually buy a house is to only submit lowball offers.  In a healthy market, a lowball offer is usually more than 12% under asking price.  In today’s market, the wishing prices are usually much more than 12% over actual market prices, so you are going to only offer 25% or more under asking.  Otherwise, you’re in danger of having your offer accepted. In the event it is, remind the seller’s agent that she won’t be earning her full commission.  If your (buyer’s) agent objects to your approach, assure her that Suzanne researched this.

Well?  What are you waiting for?  It’s 2011! The time to buy is NOW!

Many thanks to burbed reader nomadic for sending in this provocative essay. And if there’s one thing we can rely on the Wall Street Journal for, it’s got to be meaningless flamebait!

10 Reasons To Buy a Home

Enough with the doom and gloom about homeownership. Brett Arends explains why owning a home is a good thing.

By BRETT ARENDS

Enough with the doom and gloom about homeownership.

Sure, maybe there’s more pain to come in the housing market. But when Time magazine starts running covers that declare “Owning a home may no longer make economic sense,” it’s time to say: Enough is enough. This is what “capitulation” looks like. Everyone has given up.

The Sept. 6 cover of Time magazine: This is what capitulation looks like.

After all, at the peak of the bubble five years ago, Time had a different take. “Home Sweet Home,” declared its cover then, as it celebrated the boom and asked: “Will your house make you rich?”

But it’s not enough just to be contrarian. So here are 10 reasons why it’s good to buy a home.

1. You can get a good deal.
2. Mortgages are cheap.
3. You’ll save on taxes.
4. It’s your house; you can do what you want with it.
5. You’ll get a better home then a crappy rental property.
6. It offers inflation protection.
7. Sooner or later real estate prices will head up again
8. It’s forced savings.
9. There is a lot to choose from.
10. Sooner or later, the market will clear.

I had no idea The Wall Street Journal was a wholly-owned division of the National Association of Realtors.  The calendar says it’s September, not April, so this isn’t a joke they’re playing on us either.  Either this writer just came back from a Kool-Aid party or he’s heavily long in residential construction.  Then again, it seems this isn’t the first time he’s made a complete idiot of himself just to generate traffic.

This is the most bizarre mix of naiveté, insouciance, and out-and-out Lawrence Yunnery.  Just as an example, here’s Arends’ reasoning for #5:

In many parts of the country it can be really hard to find a good rental. All the best places are sold as condos. Money talks. Once again, this is a case by case issue: In Miami right now there are so many vacant luxury condos that owners will rent them out for a fraction of the cost of owning. But few places are so favored. Generally speaking, if you want the best home in the best neighborhood, you’re better off buying.

I don’t know where these “many parts of the country” are, but I suspect they’re in places where homes are so cheap, anyone who can buy already has.  In high-income, high-housing cost regions, such as New York City, San Francisco, and Silicon Valley, rentals are readily available.  Knowledge workers are often on the move, and either won’t commit to buying, or simply rent their home out when jetting off to another assignment.

I’m sure burbed readers will find plenty of fault with this list, and so conclude with this simple rebuttal:

Top 10 Reasons Not to Buy a House Now

10. Enjoy the bankruptcy-free lifestyle
9. Can live close to work no matter where work ends up being
8. No public record in county recorder’s office of where you live
7. Time Magazine finally catches up with a trend that you’ve been ahead of for years
6. When you’re tired of being underwater, you just climb onto the shore and towel off
5. Three words that don’t apply to you: Monthly equity burn
4. You want to have all your cash on the sidelines with interest rates this low
3. Payback for those smug jerks showing off the toys they bought in 2006 from mortgage equity withdrawal
2. Landlords have plenty of people to evict ahead of you if you’re a few days late with the rent

And the Number One reason not to buy a house now:

1. It’s the economy, stupid.

Update: Looks like several burbed readers couldn’t wait for this article and the party has already started.  Here are some of the lists they’ve come up with so far.

From burbed reader Alex:

Top 10 reasons to delay buying a home

1) better deals are coming
2) mortgages will get cheaper
3) you’ll save more by avoiding the impending price drop
4) you don’t have to maintain the house (change light bulbs, draino) if you rent for a while longer; if your big sh*t clogs the toilet, just call the property manager
5) for the same amount of money, you can get a much better rental than a crappy house
6) you’re protected against deflation
7) it’s forced saving by not throwing your money away at depreciating assets
8) real estate ain’t going up for a loooooong time
9) there will be even more to choose from in a few years
10) the market will clear in a few years when the shadow inventory is finally put up for sale and the government stop d*cking around with their feeble market-propping measures

This would be a perfect list if only the author had properly spelled out the word “ducking.”

From burbed reader DreamT:

Top 10 reasons to buy a home now

1. If you don’t buy it, someone else will. You wouldn’t want to be a loser, would you?
2. Grass will be greener than your current place, which has none.
3. You can mock the renters, or treat them with contempt, or just haughtily ignore them
4. Now you Belong!
5. Your wife’s happy. Your kid’s happy. If your family’s normal, you’re therefore happy.
6. Nothing worse than idle money sitting on a savings account. Make it work for you! An empty savings account is a good savings account.
7. [Another burbed reader] will be your friend, or your BFF if you’re Chinese and like to eat at Dynasty.
8. You’ll get promoted, just like [Another burbed reader]. It’s inevitable.
9. You can stop wondering when is a good time to buy. Done!
10. You missed your chance yesterday. Care to make the same mistake again today?

Top 10 reasons not to buy a home

1. Surprise – you don’t own it – the bank does, then whomever you pay property tax to who can repossess your property.
2. No matter how many times you water the plants, they still die – or they grow too fast.
3. That roof shingle flew off again, and what’s up with that toilet anyway. Oops, what’s that sound, was that the tree?
4. You’d only get pissed off at the renters who don’t keep up their grass and litter the sidewalk. Not to mention the ruffians who dare walk on Your neighborhood park.
5. There’s no money left for a good old hostile takeover.
6. You can walk away when the meth lab in the garage explodes. The owner’ll clean it up.
7. You’ll have enough money left to buy that promotion.
8. You don’t have to suffer any kind of kinship to [Another burbed reader].
9. You can mock the homeowners who turn blue every time a foreclosure rears its ugly head in the neighborhood. And nothing compels you to check zillow valuations six times a day.
10. You were smart enough not to buy in 2006, you’re not going to be dumb enough to buy now!

Please add your owns lists on the best reasons to buy or not to buy.  That is today’s question.

Housing Fades as a Means to Build Wealth, Analysts Say

By DAVID STREITFELD

The wealth generated by housing in those decades, particularly on the coasts, did more than assure the owners a comfortable retirement. It powered the economy, paying for the education of children and grandchildren, keeping the cruise ships and golf courses full and the restaurants humming.

More than likely, that era is gone for good.

“There is no iron law that real estate must appreciate,” said Stan Humphries, chief economist for the real estate site Zillow. “All those theories advanced during the boom about why housing is special — that more people are choosing to spend more on housing, that more people are moving to the coasts, that we were running out of usable land — didn’t hold up.”

Does this make any sense to you? How is it possible that there’s no law that real estate must appreciate, considering that was the law just a few short years ago in 2004?

I mean, just a few years ago, the rallying cries were that “They’re not making any land”, that “Banks are conservative – that’s why they want you to invest in real estate, because it’s a can’t lose proposition”.

And now… real estate isn’t guaranteed wealth?

How does this make any sense at all?

Guess what- it doesn’t. This is just “new thinking”. It’s a fad. It will pass.

We’re running out of usable land in the Real Bay Area. This article is in the evil New York Times based in Manhattan, where there is plenty of unused land (cough cough central park cough cough.) If anything, you should buy soon before it is too late.

And, of course, we have Prop 13.