For renters, buying a home pays off after three years on average

Real estate website Zillow says the 'break-even horizon' for potential home buyers varies widely depending on location.

 

By Alejandro Lazo, Los Angeles Times

August 2, 2012, 5:00 a.m.

Real estate website Zillow has a provocative data point for every renter thinking about buying these days: That move pays off after just three years on average nationwide.

The company, which lists for-sale and for-rent information on its site, has released a new analysis of what it calls the "break-even horizon," comparing what it would cost to buy or rent the same home in a number of U.S. markets over time.

The rent-or-buy calculus varies widely depending on where you live.

In the combined Los Angeles and Orange counties, the magic number is 4.3 years, assuming the buyer has made a 20% down payment. Buying wins out after only 1.6 year in the desert community of Banning. But Newport Beach residents must wait 14 years for buying to make more financial sense than renting.

The analysis takes into account a host of factors potential buyers should think about when considering the leap, including the down payment, mortgage and rental payments, buying and selling costs, property taxes, utilities, maintenance costs and tax deductions. The analysis adjusts for inflation and forecasts home value and rental price appreciation.

Zillow senior economist Svenja Gudell said the data should help homeowners get a rough and immediate sense of whether buying makes sense in a particular area in relation to their financial situation.

"For a home buyer out there, it is really tough to get a good grip on the buy-versus-rent decision," Gudell said. Although buying a home is a deeply personal decision, she said, the analysis gives consumers "a sense for 'Am I ready to make this decision?'"

The new take on the classic rent-versus-buy debate comes at a tenuous moment for the housing market. Many analysts believe that a housing bottom has been reached but don't expect a return to the heady days of the real estate bubble. There is already some concern about the strength of the recovery, with home sales slowing in June as inventory remained tight and buyers paid higher prices.

At the same time, rents are rising, housing affordability is at record levels, and mortgage interest rates remain very low. These factors are prompting many renters to consider homeownership.

Stuart Gabriel, director of UCLA's Ziman Center for Real Estate, noted that the main lesson from the subprime mortgage debacle and the housing bust was that homeownership shouldn't be pushed at all costs. Federal policy has been adjusted to support this new point of view.

"One of the things we have learned in recent years is, obviously, house prices don't always go up, and even over the very long term in certain markets homeownership may only offer a minimal return," Gabriel said.

"What we have all learned is to treat homeownership as a bit of a dangerous animal. You know it's not always good, and it's not good for everyone."

Things to consider when buying, particularly in an slowly appreciating market, include how mobile will you be, your financial situation, marital status, career goals and personality, Gabriel said.

Richard Green, director of the USC Lusk Center for Real Estate, added that in many regions buying has become increasingly attractive compared with renting. There are also non-financial reasons for buying.

"I can enjoy living in this house for the rest of my life, and nobody can throw me out of it," he said. "You are consuming something, and you have control over it, and control has some value."

Zillow's analysis, which covered more than 200 metropolitan areas and 7,500 U.S. cities, found that buying is a better financial decision than renting in the Riverside-San Bernardino area if you live in the home for at least two years. That rises to 3.2 years in the area including Oxnard, Thousand Oaks and Ventura.

The San Francisco metropolitan area's break-even score of 5.9 years encompasses a range from two years to 24.3 years.

Julie Andrews' Brentwood house isn't going for a song

The home Andrews owned with her late husband, director and screenwriter Blake Edwards, is listed for $2.649 million. It's already in escrow less than a month after going on the market.

 

Singer and actress Julie Andrews has listed the Brentwood house she owned with her late husband, director and screenwriter Blake Edwards, for $2.649 million. Less than a month after coming on the market, the tidy white home with gray shutters is already in escrow.
The traditional-style house features a family room and living room with French doors opening to a fanciful garden that appears to be "practically perfect in every way" to borrow a phrase from "Mary Poppins." The formal dining room has a cathedral ceiling and glass walls. An artist's studio with a bathroom sits above the garage for a total of four bedrooms and three bathrooms.
The less than quarter-acre lot is surrounded by tall hedges and is gated — no doubt discouraging neighbors from nipping over to borrow a spoonful of sugar. There is a swimming pool and spa.
Andrews, 76, starred in musicals including "My Fair Lady" and "Camelot." She won a lead actress Oscar for "Mary Poppins" (1964) and starred in "The Sound of Music" (1965), "Thoroughly Modern Millie" (1967) and the "Princess Diaries" films in 2001 and 2004. More recently she voiced Gru's mom in "Despicable Me" (2010) and the queen in "Shrek Forever After" (2010). Last year she received a Grammy Award for lifetime achievement.
Edwards, who died in 2010 at 88, received an honorary Oscar in 2004 for his work including such films as "Breakfast at Tiffany's" (1961), "The Great Race" (1965) and the "Pink Panther" films.
Public records show the property was purchased in 1989 for $1.2 million.
Gary Glass of Prudential California Realty in Brentwood is the listing agent, according to the Multiple Listing Service.
Studio has been sound checked
A former home of Andrews' also is up for sale. Film producer Stacey Sher and musician Kerry Brown have listed the house in the Beverly Crest area at $5.795 million.
Originally designed by Wallace Neff, the 1948 house was later remodeled. The 1.61-acre site includes a 7,800-square-foot main house, a 2,480-square-foot guesthouse, a separate building with a bathroom, a tennis court, a basketball court, a swimming pool and waterfalls.
The living space features beamed ceilings, stained-glass windows, brick, stonework, mahogany doors and six fireplaces. There are five bedrooms, five bathrooms, a screening room, a den and a gym in the main house. The four-bedroom, three-bathroom guesthouse contains living and dining rooms, a kitchen, a den, an office and recording studio space.
Among artists who have recorded at the studio are Courtney Love, Ziggy Marley and the Strawberry Alarm Clock. It has also been the site of music recorded for the films "P.S. I Love You" (2007) and "Death to Smoochy" (2002).
Sher, 49, is in New Orleans working on Quentin Tarantino's upcoming movie, "Django Unchained." Her production credits include "Pulp Fiction" (1994), "Erin Brockovich" (2000) — for which she shared an Oscar nomination — and the series "Reno 911!" (2004-09).
Kerry, 48, has played drums with the groups Catherine, the Smashing Pumpkins and Spirits in the Sky. His music editor and production credits include "Along Came Polly" (2004) and the series "Jessica Simpson: The Price of Beauty" (2010).
Rick Chimienti of Prudential's Beverly Hills office is the listing agent.
Another spin for Dorothy's place
Her Kansas home in "The Wizard of Oz" flew through the air. Now a Bel-Air house that was home to a young Judy Garland has flipped, selling for the second time since last year for $6,772,669.
The Wallace Neff-designed house sold in 2011 for $5.2 million and was then updated and renovated.
The two-story traditional, built in 1938, sits on about 2.5 acres. The 5,513-square-foot house features dormer and bay windows, white columns, French doors, five bedrooms and 61/2 bathrooms. Outdoor amenities include a swimming pool and a detached studio.
Garland, who played Dorothy in the 1939 classic, died in 1969 at 47. The actress and singer received an honorary Oscar in 1940 for her performances in "Oz" and "Babes in Arms" and was later nominated for her work in "A Star Is Born" (1955) and "Judgment at Nuremberg" (1961).

A Flicker of Hope Appears in the Housing Market

By FLOYD NORRIS

THE boom in housing in the middle of the last decade created a huge oversupply of homes in the United States. But now that oversupply appears to be close to vanishing, at least in most parts of the country.

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Off the Charts: Working Off a Housing Oversupply

That reduction of supply does not in itself guarantee a revival for the depressed homebuilding industry, but it does remove one obstacle.

Historically, there was a loose relationship between the population over 16 years of age and the number of new homes sold each year, with an average of 376 homes sold for every 100,000 people from 1963 though 1996. The rate fluctuated with the economy, of course, falling during recessions and when interest rates were high, and rising when the economy recovered or interest rates were declining. But the booms were mild compared with the one that came in the middle of the last decade. Then, when the credit crisis and recession arrived, homebuilding collapsed.

Combining the boom and the bust, new-home sales have actually adhered to the historical average. From 1997 through March of this year, the average rate was 375 homes sold per 100,000 people. But, during the boom from 1997 until 2007, 1.8 million more new homes were sold than would have been expected under the historic average. Since 2007, two million fewer homes have been sold than would have been expected.

That calculation would seem to indicate that there is no longer a large overhang of available new homes for sale. That is confirmed by government figures indicating that at the end of March, there were only 144,000 new homes for sale, the lowest level since the government began collecting data in 1963. Of those, 48,000 had been finished, with the rest either planned or under construction. In early 2008, 199,000 finished homes were for sale.

The supply has not been exhausted in all areas, of course. Areas where speculation was most intense, like Las Vegas, still may have too many homes available for sale.

A low supply of new homes does not, by itself, affect demand, and there are reasons demand remains subdued. Many new homes are historically sold to homeowners moving up. Those homeowners need buyers for their existing homes, and they may be hard to find now. In addition, many homeowners cannot trade up now because they owe more on their old homes than the houses are worth.

Other impediments to a significant rise in new-home sales include stringent credit standards for new mortgages and the psychological scars left from the collapse in home prices.

There are indications that fewer households have been formed in recent years than would have been expected from population growth. More young adults have stayed with their parents, while other people who lost their homes or jobs were forced to move in with relatives. If and when the economy improves, many of those people could seek housing of their own, creating a sudden increase in demand.

A major reason the recovery from the 2007-9 recession got off to a slow start was the lack of a contribution from the homebuilding industry. That may be changing. In the first quarter of this year, reported Friday, residential investment was estimated to have grown at an annual rate of 19 percent. The figure was up 8.8 percent from the same quarter a year ago, for the largest annual rise since 2004.

Similarly, while sales of new homes remain low by historic standards, the number of sales in the first quarter of this year was up 17 percent from the same period of 2011. That was also the best year-over-year gain since 2004.

U.S. home prices post decline

By Alejandro Lazo, Los Angeles Times

February 29, 2012

Home values in big U.S. cities have fallen to their lowest levels since the start of the housing bust, but cheap prices could draw in new buyers and bolster the chances of recovery, economists say.
A key gauge of home values in the nation's largest cities fell in December to its lowest level since the start of the housing crisis in mid-2006 — the latest evidence that real estate prices remain in a funk.
The Standard & Poor's/Case-Shiller index of 20 American cities, released Tuesday, fell 1.1% in December from November and 4% from December 2010. Eighteen out of the 20 cities tracked by the index posted declines while Atlanta, Las Vegas, Seattle and Tampa, Fla., saw average home prices hit new lows.
Although a bottom in prices doesn't appear imminent, several economists pointed to small improvements in the housing market — including upticks in sales and new construction — that could support a recovery.
In addition, they say, values aren't in a free fall similar to the one that emerged after the subprime mortgage crisis and credit crunch of 2007. The drop in prices is largely because of foreclosures, economists said, which continue to ravage certain hard-hit neighborhoods while places with fewer distressed sales improve.
"If you are not in a neighborhood where foreclosures are a big problem, it's very likely that home prices are not dropping," said Patrick Newport, U.S. economist for IHS Global Insight. "They are stabilizing or rising."
Celia Chen, a housing economist at Moody's Analytics, drew the distinction between a recovery in home sales and new construction, which appears to have begun, and an improvement in prices, which remains elusive and will probably continue to remain so through much of the year.
"Enough homes are in the foreclosure pipeline to keep house prices falling through much of this year," Chen said.
There are other indicators that may support a housing recovery, including increased household growth, record-high affordability, a tighter supply of homes on the market, low interest rates, a pickup in sales of previously owned homes and an increase in the number new units started by builders.
Housing remains road-blocked by persistent unemployment, the sheer number of foreclosures, the difficulties buyers are having securing mortgages and the large share of homes underwater, in which the owners owe more than the homes are worth.
"In terms of prices, the housing market ended 2011 on a very disappointing note," said David M. Blitzer, chairman of the index committee at S&P Indices. "While we thought we saw some signs of stabilization in the middle of 2011, it appears that neither the economy nor consumer confidence was strong enough to move the market in a positive direction as the year ended."
All the California cities in the index posted declines from the previous month. Los Angeles, San Diego and San Francisco fell 1.1%, 0.7% and 0.8%, respectively. Only two metro areas posted monthly gains: Miami, up 0.2%, and Phoenix, up 0.8%.
A separate, national index published quarterly by S&P Case Shiller fell 3.8% during the fourth quarter of 2011 and was down 4% compared with the fourth quarter of 2010.
Investors shrugged off the news of a new housing-price low and pushed U.S. stocks higher. The Dow Jones industrial average extended its recent gains to close past the 13,000 mark for the first time in four years.
"Although the rate at which house prices are falling accelerated at the end of last year, it may only be a few more months before the decline seen over the last five years comes to an end," said Paul Dales, senior U.S. economist at Capital Economics. "We expect prices will be broadly unchanged this year and next."
The severity and length of the housing depression — now more than five years in the offing — has surprised forecasters. Warren Buffett, the billionaire investor, said over the weekend that he had been "dead wrong" predicting that a recovery in housing would have begun by now.
But even the biggest pessimists have softened their outlooks. Robert Shiller, a professor at Yale University and co-creator of the index who raised eyebrows last year with comments that home prices could experience severe declines, said Tuesday that his outlook had grown slightly more optimistic.
alejandro.lazo@latimes.com

2012 Home Sales: Positives on Many Fronts

NAR released its latest pending home sales index figure last week and for the second month in a row the index is up. But more than that, the index has broken 100. This is significant because the only time since the housing boom collapsed that the index has broken 100 is when the home owner tax credit was in effect. The fact that the index has returned to that level a year since the credit has been in effect means the housing market is strengthening completely on its own, without any stimulus.

NAR Chief Economist Lawrence Yun is upbeat about 2012 because in a number of areas indicators are pointing upward. Not only are home sales up but housing starts are up and home prices are stabilizing in many markets and heading up in some. In areas where they’re still down, the declines aren’t that great. More fundamentally, broader U.S. economic signs are looking positive, including the all-important jobs picture. About 100,000 job are being created a month, and that could rise to 150,000—still not a quick enough pace to get us back to where we were before the downturn but the headwinds are in the right direction.

Home Prices Decline 5.9% in Second Quarter

Kathleen M. Howley, On Wednesday August 24, 2011, 10:21 am EDT

U.S. home prices fell 5.9 percent in the second quarter from a year earlier, the biggest drop since 2009, as foreclosures added to the inventory of properties for sale, according to the Federal Housing Finance Agency.
Prices declined 0.6 percent from the prior three months, the Washington-based agency said today in a report. In June, prices retreated 4.3 percent from a year earlier, while increasing 0.9 percent from the previous month.
Foreclosures are boosting the supply of properties on the market and undercutting the confidence of homebuyers, sapping demand even as mortgage rates tumble to near-record lows. The U.S. inventory of homes for sale averaged 3.7 million during the second quarter, the highest since the third quarter of 2010, data from the National Association of Realtors show. The mortgages on 6.5 million U.S. homes had late payments or were in foreclosure in June, according to Lender Processing Services Inc. in Jacksonville, Florida.
“Foreclosures water down home prices because banks want to get rid of properties as fast as they can,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts. “The key number driving foreclosures is the unemployment rate, and we saw that worsen in the second quarter.”
Today’s FHFA report measures changes in real estate values using repeat data on individual properties with mortgages backed by Fannie Mae or Freddie Mac. It doesn’t include a dollar value for homes. The U.S. median home price was $171,900 in the second quarter, according to NAR.
To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net.
To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net.

Geithner Urges U.S. Housing-Finance Law Within Two Years to Avoid Bailouts

U.S. Treasury Secretary Timothy F. Geithner said Congress must pass housing-finance legislation within two years to avoid more taxpayer-funded bailouts.
Without action, the housing market could remain vulnerable to flaws that led to the 2008 credit crisis, Geithner said today at a House Financial Services Committee hearing in Washington.
“We are faced with difficult choices that will involve real trade-offs,” Geithner said. “The challenge before us is to strike the right balance between providing access to mortgages for American families and communities, managing the risk to taxpayers and maintaining a stable and healthy mortgage market.”
Fannie Mae and Freddie Mac, the mortgage-finance companies operating under federal conservatorship, have been sustained by $154 billion in Treasury funds since they were seized in September 2008. The two government-sponsored enterprises own or guarantee more than half of U.S. mortgages.
“It is very important that we wind down Fannie Mae and Freddie Mac at a careful and deliberate pace,” Geithner said. Moving too quickly “could shock an already fragile housing market, severely constrain mortgage credit for American families and expose taxpayers to unnecessary losses.”
U.S. Representative Spencer Bachus, the Alabama Republican who leads the Financial Services Committee, said it is a good sign that Republicans and Democrats seem to agree that the government-sponsored enterprise should be wound down.

‘Very Encouraging’

“It is very encouraging to me that there is now a bipartisan recognition that we must move toward a private market rather than one where the government backstops 90 percent of all mortgages,” Bachus said in his opening remarks.
Geithner and Housing and Urban Development Secretary Shaun Donovan on Feb. 11 released a list of recommendations for reducing government’s role in housing finance. Under the plan, retained portfolios at Fannie Mae and Freddie Mac would shrink by at least 10 percent a year from their current levels of about $1.5 trillion.
Representative Scott Garrett, the New Jersey Republican who leads a Financial Services subcommittee, said the administration plan was “somewhat light on specifics and without a concrete position on a way forward.”
The Treasury’s plans for immediate action include increasing guarantee fees, raising capital standards and requiring bigger down payments from borrowers. Geithner said administration officials will work with lawmakers on ways to fund mortgage loans, perhaps by “developing a legislative framework for a covered bond market.”

‘Fully Committed’

The Treasury secretary today reiterated that the Obama administration is “fully committed” to ensuring Washington- based Fannie Mae and Freddie Mac of McLean, Virginia, can meet debts, retain staff and fulfill guarantee obligations.
The companies’ cost to taxpayers is declining, Geithner said. “The loss estimates are coming down,” and are projected to decline to about $73 billion by 2021, according to budget estimates. That projection doesn’t take into account higher guarantee fees the Treasury is seeking.
President Barack Obama’s 2012 budget estimates predicted that taxpayer aid to Fannie Mae and Freddie Mac could total $224 billion by the end of 2012, of which $55 billion will be returned in dividends.
Fannie Mae and Freddie Mac requested another $3.1 billion in government aid when they reported quarterly earnings last week.