Rent vs. Buy Visualization of Top 50 Cities

http://trulia.movity.com/rentvsbuy/

by anon22 • 16 years ago

235 144 16 years ago

trulia.movity.com

mryall4• 16 years ago

I was hoping to see how affordable it is to buy in different cities around the world. Unfortunately, this data covers 50 cities in just one country.

It should really be the "Top 50 Cities in the US". The US-centric nature of websites like this is even more irritating when they don't state it up front.

keiferski3• 16 years ago

Trulia's Q1 2011 Rent vs. Buy Index provides guidance to help you make a smart decision on whether it is better to rent or buy in each of America's 50 largest cities by population.

mryall4• 16 years ago

I meant on this site. People coming to it from a different direction might have more context or be less geographically distributed.

natrius2• 16 years ago

This same page for the largest 50 cities in the world would be useless. Unless you're very rich or European, it's very likely that the only comparisons that matter are domestic.

mryall4• 16 years ago

The top cities for buy/rent ratios are not necessarily the largest. And I know quite a few people who own properties in other countries who are neither rich nor European. One was an English IT contractor living in Australia who bought a small property in Auckland.

Your "domestic" is not the same as everyone else's.

kmfrk• 15 years ago

I thought the same, too.

This would also require you to factor in exchange rates, but I guess that's not much of a problem when done as a snapshot view.

cryptoz2• 16 years ago

"...of Top 50 [American] Cities"

It's odd seeing lists like this that focus only on a specific country, ignoring important neighbors. Take Toronto, for example. That city is more important than 40-45 of the cities listed, but since it's a few miles North of some border, it gets completely ignored.

Why not focus on a geographic region instead?

gyardley• 16 years ago

The border likely affects the availability and format of the data needed to make the calculation.

cryptoz2• 16 years ago

That makes sense. It would still be nice for the title to reflect that, though, rather than the ambiguous and misleading "Top 50 Cities" that it is right now.

exit• 16 years ago

yeah, borders suck.

zeteo• 16 years ago

There are two meanings of the word "America" in common usage. The restricted meaning, used by the article, refers to the political entity USA. The general meaning refers to the continent(s). I don't think many people who saw the title were expecting data on, say, Buenos Aires.

thehickmans• 16 years ago

I did a few quick searches and Vancouver would be at 25 on their scale for a single-family detached house. That's using a median listing price of $900,000 and median rent of about $3000/month.

The data is out there and the Canadian real estate sales market could certainly use the shakeup of someone like Trulia.

100k• 16 years ago

As an American I noticed that when I visited Toronto, Canadians would always compare things to "North America" (as in "Toronto has the 7th largest metro area in North America").

Interestingly, the meaning of this would typically exclude Mexico and Central America, which by geography it should not.

Whereas in the US, we typically compare things to "America" and exclude Canada and Mexico as a matter of course.

keiferski3• 16 years ago

Cleveland is included, but not Pittsburgh? Someone's a Jets fan...

On a technical note, the information in the hover bubble is mis-aligned; the right side is a space below the left side, at least on this older version of Firefox.

showerst6• 16 years ago

They just pulled the top 50 cities from the census, Cleveland is 43, Pittsburgh is 61.

https://secure.wikimedia.org/wikipedia/en/wiki/List_of_Unite...

(Cities vs metro areas, oh the perils of using census data.)

keiferski3• 16 years ago

Ah, I see. That makes sense, especially because the actual "city" of Pittsburgh isn't all that populated.

ianferrel2• 16 years ago

The concentration of high-population areas in California does some strange things to the map when the city circles are sized by population.

The positions don't even seem to be constant. If you sort by something else, the circle move around, but they don't necessarily move back to the same place.

I have nothing interesting to add about the content of this site; I was too befuddled by its presentation.

jpwagner• 16 years ago

It looks like it does not attempt to preserve geographic location exactly.

It seems to load them in alphabetical order and fits the next one as best it can given the already plotted bubbles.

shashashasha3• 16 years ago

(I made this)

Sorry if this is confusing! This visualization is a Dorling Cartogram, which sacrifices geographic location accuracy in order to not have overlapping points (the East Coast would be a tight unreadable bundle otherwise, as well as the Bay Area). The basemap is intentionally left as just an outline to provide some visual context.

A great example of this in action is the Olympic Medal count visualization by the NYTimes: http://www.nytimes.com/interactive/2008/08/04/sports/olympic...

leelin2• 16 years ago

Very very cool!

I'm wondering why they chose 15 / 20 as the cutoff ratios though. I'm a licensed real estate agent in NYC and I've helped a number of clients make purchases where it was actually cheaper to buy than rent (usually a studio or 1BR, or outside Manhattan).

It seems like you can finance a home purchase these days at 5% or less on 30-year fixed. Add in the mortgage interest tax deduction and you are really borrowing at 3.00% (assuming your marginal tax is 40% including state / local taxes, which would be true of anyone buying a $1.3M 2br as referenced in the site).

That seems to justify a break-even ratio of about 33, not 16 or 20. Of course, you do have to add back HOA dues / coop maintenance + property taxes, and the nasty transaction costs for buying and selling. That is somewhat tempered by your rent (and property values) going up with inflation while your mortgage payments are fixed. Therefore, all the usual disclaimers apply that you need to be willing to stay there and own the property for quite some time.

EDIT: clarified that 5% rates are for 30 year fixed mortgages; 15-year amortizations would get 4.25% or so, changing by the day.

EDIT2: The tax deduction is LESS good in other metro areas. When I used to live in Redmond, WA, my marginal rate was not 40% (there is no state income tax in WA and houses are much cheaper). Also far more subtle but often ignored, in Washington most renters would take a standard deduction and only home-owners would itemize their deductions. Itemizing mortgage interest means you lose out on the standard deduction. In NYC, just about everyone itemizes because state / local income tax is already compelling enough to do so, therefore almost all the mortgage interest is deductible except for the amount subject to Pease provisions.

mryall4• 16 years ago

I hope people aren't buying at 30x rental. The current US interest rates are at historic lows, so unless you get a fixed-rate mortgage you're going to be struggling when the interest rate goes up again.

shashashasha3• 16 years ago

(usually a studio or 1BR, or outside Manhattan)

I think this is the main qualifier. As I understand it, the data is comparing prices to rent vs buy on similar 2 bedrooms.

tomsaffell6• 16 years ago

I agree. I just ran the numbers for SF. Based on mid-point of Trulia's buying and renting price ranges ($750K to buy, $3.25K monthly rent), I get the following annual real costs:

  buying:  ~$24K
  renting: ~$36K

That is based on the following assumptions: 40% margin tax rate, principal repayment is not a real cost (it's a saving account...) 15% down payment (renters invest the equivalent amount in a 3% annual return fund), 30 year ammortization of loan with a 4% rate (available now on 5 year ARMs -- you can always go back to renting in 5 years, and if rates soar then that means the economy has recovered, which means your house is worth more..), property tax of 1.16%, closing costs of $10K (that's high), spread over 5 years, home-owner insurance of $600 per year (that's what I pay), no insurance for renters

EDIT:

  less risky buying option : ~$30K

(now assuming a 5% loan (30-yr fixed), and PMI insurance of 0.5% of loan value, per year - require for less than 20% down)

There are many good replies to this thread, that essentially point out that buying a house is risky, and that my assumptions do not deal with any 'bad case' scenarios. But nor do my assumptions deal with any 'good case' scenarios (house prices being higher in 5 years time in San Francisco - it might just happen..) But the topic of the original article is about costs, not risk, so I kept the topic at parity, and only dealt with costs. If I were advising anyone for real on rent-vs-buy I would strongly encourage them to consider the risk and reward element of the rent-vs-buy decision, in the context the general financial situation.

Summary: buying is riskier than renting, and it can also be substantially cheaper. Right now, with a 30-yr fixed mortgage, it's cheaper. You have to take on the 'house price risk', but that also carries a potential reward, as this is San Francisco..

mrtron2• 16 years ago

   available now on 5 year ARMs -- you can always go back to
   renting in 5 years, and if rates soar then that means the 
   economy has recovered, which means your house is worth more..

Rates soaring could also push the real estate prices drastically down.

cma• 16 years ago

     >if rates soar then that means the economy has recovered

This is not true.

     >the economy has recovered,which means your house is worth more

This is also not true, taken independently of soaring rates or otherwise.

klochner2• 16 years ago

   > 30 year ammortization of loan with a 4% rate (available now on 5 year ARMs)

You realize that's how a ton of people lost their homes, right?

webwright• 16 years ago

"you can always go back to renting in 5 years"?

You mean sell the house? Fees alone would hammer you pretty hard if the value was flat for 5 years. Selling houses costs a LOT of money. Also, you need a 20% downpayment to dodge mortgage insurance, I think.

http://www.nytimes.com/interactive/business/buy-rent-calcula...

That gives a pretty clear picture. The moving parts that matter are interest rate, appreciation of the purchased home, and inflation of rent.

patio11• 16 years ago

Principal repayment is a savings account if and only if real estate never declines in value.

dminor• 16 years ago

> you can always go back to renting in 5 years

For definitions of "always" where the real estate market never tanks and houses are easy to sell.

hessenwolf• 16 years ago

(liquidity premium as well as risk)

chrismetcalf• 16 years ago

I agree that the cutoffs are a bit low, and, at least for Seattle, I think the numbers for buying ($400-500K) are a bit high of reality.

I was able to buy last summer, trading in a rented two bedroom condo at $1350/mo for a two bedroom house in the same neighborhood, and I'm paying less than $50/mo more for my 30-year fixed mortgage than I was paying in rent. Yes, I've got more skin in the game with my downpayment, but it's in a growing neighborhood and I'm pretty confident that values in my area will go up in the next 5 years or so (its already appraised for higher than my purchase price).

Plus there are a lot of benefits to home ownership that I can't really assign a dollar value to. When I come home from my tech job and I don't want to sit in front of a keyboard anymore, I hack on my house. I've done a bunch of plumbing and electrical upgrades on the house, and I'm planning on building a backyard office / guest house "shed". And nothing can erase the stress of a long day quite like taking your shoes off and walking around in YOUR grass and relaxing in the backyard hammock.

If that stuff doesn't appeal to you, you'll probably be happier renting anyway. If I'd looked at it in purely financial terms I'd probably be in a rental myself.

chanri2• 16 years ago

The statistics on this infographic are misleading. It does not cost 200,000 to buy a house in San Diego or San Jose!

Maybe the average for downtown San Jose and San Diego are close to 200k, but that is the poorest area of both cities and not what should be used to compare. The green bubble on the point for San Diego should be much much smaller in radius(like miniscule), otherwise you think the 200k number refers to the entire city!

People should not be using this to make informed decisions (obviously).

showerst6• 16 years ago

I believe that they're basing this data on stats collected by the census, so you have take the city as defined by the census bounds, which aren't necessarily similar to common conceptions of what area is 'in' a city.

chanri2• 16 years ago

There are many cities in the county of San Diego. The city of San Diego (where you are suggesting that the 200k number came from) is about 10-20% of the size of the county of San Diego.

They should make the size of the bubble smaller to only cover the area of the city like you are saying.

bengebre• 16 years ago

I noticed they are using "listing prices" instead of sale prices or any kind of constant quality index to calculate their ratios. That's probably not ideal, but since price series are hard to find for homes it's at least understandable (that and it's their business model to collect listings).

I do a lot of work in this domain and the price-to-rent and price-to-income ratios for California look higher by my calculations. Using median sales prices for the broader metro area and income and rent data from the Census, I'm finding California is still quite expensive.

http://www.deptofnumbers.com/affordability/metros

Click on the table heading columns to sort and you see some pretty unaffordable stuff in California. For San Jose the rent ratio is ~35.

Note: In case it wasn't obvious, I'm linking to a site I maintain above.

ry0ohki• 16 years ago

Interesting how DC and LA seem to have similar numbers and yet DC is affordable to buy (because rents are slightly higher?) while LA is more affordable to rent and a much larger bubble indicating some dramatic difference that I don't see.

showerst6• 16 years ago

The circles are scaled by population, and according to the census city boundaries they're measuring LA is 3.8MM compared to DC's 600K, which is a pretty dramatic difference, although it's just an artifact of which data they chose to use for population.

Personally I think they should've measured by metro areas, although unless they have detailed lat/lon for every property they sell working out that data might've been a mess.

iwwr• 16 years ago

The decision to buy is prone to two major risks:

1. That the value of the property will fall.

2. That you will be offered a better job in another town and it's too expensive to move

yummyfajitas2• 16 years ago

A third risk (technically subsumed by 1): your local economy tanks, driving down both your income and the value of your house.

Buying a home to live in is a form of un-diversification.

louislouis• 16 years ago

A fourth risk: Fed raises interest rates then your monthly mortgage payments cost more than renting and hopefully not more than you can afford.

aik2• 16 years ago

I'm confused about the populations. For example, it mentions the population of Kansas City is 143K. Wikipedia says 482,299, and "greater" KC is closer to a million. What exactly is measured here?

showerst6• 16 years ago

Population of the incorporated city in 2009 from the census. https://secure.wikimedia.org/wikipedia/en/wiki/List_of_Unite...

They probably should've used metro area, but that might've been a data challenge if they lacked lat/lon for each property.

EDIT: Looks like they're using the wrong Kansas City! That 143K population number is for Kansas city, Kansas, which is much less than half of the total city.

The other half, Kansas city, MO is 482,299, and in the top 50, unlike Kansas City, Kansas.

Probably a bug.

41latitude• 16 years ago

The population of Kansas City is 143,000--Kansas City, Kansas, that is. (They're mistakenly using population data for Kansas City, Kansas, instead of the much larger Kansas City, Missouri.)

mkinsella• 16 years ago

Having just moved to KCMO, I was very confused by this though happy that I'm renting

grav1tas2• 16 years ago

It appears to be using the data from KCK. If it's pulling the population data from there it might be a safe bet that everything else is from KCK, too. That being said, regardless, I think the entire bit about KC being ranked up near San Fran and NYC is way off. There's very reasonably priced housing in the greater metro area. I don't think the sample they're using on this site is very accurate at all. I find it really hard to believe that of all the midwestern places to live on this site, Kansas City is the most expensive in terms of Rent:Buy. 200-300k? This probably isn't true of some of the big swaths of outer KC I've driven through, and it definitely isn't true of the suburban areas.

Aside from this little sampling problem, and it's easily fixed, no big deal, I think this site is really cool and a great way to look at affordable places to live.

aik2• 16 years ago

Yeah if it's specifically from KCK, depending on where in KCK that high buy dollar could make sense. But for a lot of parts of KCK, and the Missouri side, 200-300k is ridiculously high compared to what I would expect. Most suburbs in general have much lower prices.

cletus6• 16 years ago

I'm from Australia but now live in NYC and I've been debating the question about whether to buy or rent. It's amusing to me to see a big red circle on this graphic for NYC. I can understand why.

NYC is a special case in many ways. For one thing, from a purely financial perspective, your best bet is to find a rent stabilized apartment that is well under market value and then invest your money elsewhere, possibly on buying a property you don't live in in NYC!

In Australia, buying property is a big thing. I'd imagine that in OECD rankings for home ownership, Australia ranks reasonably highly. Interestingly, the Guardian (in the UK) years ago did a study that showed that economic growth in Europe was inversely proportional to the rates of home ownership (meaning the countries with the highest rates of home ownership--eg Spain--had the worst performing economies and vice versa).

This makes a certain amount of sense: home ownership creates a less flexible labour market.

Anyway, in Australia, it's common to not only buy the property you live in but also investment properties. Investment properties are tax advantageous (in that the mortgage interest is a tax deduction) but you pay capital gains tax when you sell (but a good investment strategy will have you never selling; you just free up the equity to buy something else). The home you own is the reverse: mortgage interest is not tax deductible but your principal place of residence is capital gains tax free when you sell.

Now the thing about real estate is that it's a hedge against inflation. For example, 10 years ago you could buy a 3 bedroom house (built in the 70s) 10 miles from the city centre in Perth for <$100k. 5 years later? $350k minimum. There was a structural change in the economy that hasn't since reversed and doesn't look like ever reversing. Part of this was the increase in land cost but part of it is the increase in building cost (where once you could build a house for $80k, now anything less than $150-200k is unrealistic).

So if you'd rented in that time you would've missed out on that huge jump. Thing about real estate growth is that it is never smooth. It'll go through periods of high growth and others of stagnant prices if not negative price growth. So it's a long term investment (typically 7+ years).

But the real estate market in Australia is highly speculative.

I say that because I've also lived in Switzerland, which has an almost planned economy. The tax system stamps out property speculation, arguing that it is in the common good to have affordable housing. This is an opinion that I think has merit. To give you an example, if you sell a property within 2 years of buying it, the capital gains tax is 100% (iirc), meaning the entire gain is taxed.

Anyway, back to NYC. NYC has a lot going for it from a real estate perspective. It's a center for jobs but also land is a finite resource here. Manhattan isn't getting any bigger. Most industrial areas have already been converted to residential (or, more accurately, mixed residential/commercial). Manhattan is mostly gentrified now.

Betting on a limited resource is typically a good plan but the difference between renting and buying is huge here. Like a 1BR that might cost $2000 to rent will probably cost >$500K to buy and have significant ($300-600/month) maintenance fees to boot.

I really don't understand what motivates investors for that kind of return. So something will change in the future but will prices come down (or just stagnate for years) or will rents go up? If it's the former, rent. If it's the latter, buy.

So I'm really torn on whether I should position myself to buy in the future or simply resign myself to renting. At this stage I'll probably rent just because I may move around with my employer (Google) but I must admit: the prospect of owning an apartment in Manhattan is appealling.

keyle• 16 years ago

Hey mate. Interesting perspective.

without knowing your financial situation, I'd suggest to keep working in the U.S. and invest in housing back in Australia.

Both are great prospects but you might be able to buy 2 houses near the beach in Australia (say Perth / Adelaide) for the price of one in NYC. In a way, it gives you diversification that NYC doesn't. Also buying walking distance from the beach gives you that security that land value will never go down.

I agree about the tax system in Australia. But I like it.

cletus6• 16 years ago

> I'd suggest to keep working in the U.S. and invest in housing back in Australia.

As it happens I do own a house in Australia that is rented out but when you're paid in one currency and your costs are in another you open yourself up to exchange rate risk. So I'm way of overweighting myself in AUD liabilities. It's not a currency I'd be betting against in the next 10 years. Likewise, the USD looks like it'll only get weaker in the short to medium term. Pretty much every government here has a budget in deficit and you may find local and possibly even state governments defaulting in years to come.

The US governments (at every level) seem to have made the same mistake as many individuals: when times are good they simply increase spending to match or exceed revenue. When revenues drop they're in a bad position. The US has this huge Sword of Damacles hanging over its head in the form of Social Security. It's ultimately unsustainable in its present form. Everyone knows it. Nobody wants to do anything about it.

At least in Australia we've been moving towards funding our own retirements for decades. We're not there yet but we're a damn sight better off.

As for buying houses near the beach, not in any capital city I know about (except maybe Brisbane now). Certainly not Perth or Sydney. In Perth you'd have to go 50km+ north of the city to get anything remotely close to the beach for under $500k.

And the idea that property near the beach "will never go down" is exactly the kind of thinking that led to the subprime meltdown.

As for the Australian tax system, mine was't a criticism, merely an observation. Frankly I think any system that encourages people to create homes for others to rent as doing a public good. After all, when someone rents, somebody else by definition has to own that house.

One other difference worth pointing out between the US and Australia is that in Australia interest rates are typically variable. They move mostly in lockstep with the official (Reserve Bank) cash rate. You do get fixed mortgages but they're rarely for more than 5 years.

In the US, mortgages seem to be fixed for the 30 year life of the loan. This actually makes buying in the short to medium term attractive in the US as interest rates can only really go up. 4% fixed for 30 years is a hell of a deal.

prawn2• 16 years ago

Amusingly, there are media stories here in Australia about people working in Australia and buying property in the US. Might have the details wrong, but one woman had sold an investment property (in Darwin maybe?) and bought five apartments (in Florida, I think?) in the US with that money.

jbarham• 16 years ago

> Also buying walking distance from the beach gives you that security that land value will never go down.

Sure, just like all those condos in Miami... There is no economic law that says that properties near the beach can never go down in value!

vaksel• 16 years ago

Your numbers seem to be a little off, unless we are talking about places that are closer to bronx or buildings that are falling apart.

In midtown, that 1BR will run you ~$2,500 to rent and close to $1 million to buy.

Maintenance fees should also be higher, at least $800.

cletus6• 16 years ago

Are you talking a modern condo? If so I believe it. If not, you can find places for cheaper than that. Put it this way last month I rented a 1BR in a Chelsea brownstone for $2,000/month (which is generally more expensive than Midtown).

But think about those numbers for a second. $2500/month is $30,000pa or a 3% gross return, even less once you factor in maintenance. To put that in perspective, 5% gross return seems to be the benchmark in Australia (although in Australia there tends to be a tradeoff between capital growth and annual income).

In London I've seen the gross return be 10% or even higher.

So who would invest $1 million for a <2% gross return? That's nothing but a bet on future capital gains. In other words it's speculative. So the question is: is that sustainable (meaning will rents go up to match) or unsustainable (meaning prices will stagnate or go down)?

On a side note, some may consider it strange that I'm talking about the rent figure as a return. I've certainly spoken to many people who can't look past the speculation but that income is really important as it does relate to the asset price. They simply can't get too far out of whack sustainably.

Commercial or industrial property tends to be judged much more on viewing the property as an asset that generates income (Las Vegas casinos notwithstanding).

rdouble3• 16 years ago

I lived in NYC during 2009-2010 and looked at a number of rental 1BRs under $2000 in Chelsea/Flatiron/Murray Hill & that area around Gramercy that isn't really Gramercy.

I wouldn't say the buildings were falling apart but they did have dated architecture, and not dated enough to be classic. (think 70s/80s).

Likewise, I thought it would be a good time to buy, and there are a lot of 1BR < $600K in those same areas. Also, Upper East Side towards the river had similar "deals." Oddly enough, I feel Morningside Heights is overpriced, probably because there were so many TimeOut NYC style articles about how it's great for gentrifiers.

Maintenance fees were indeed always too expensive, but was more around $600.

Your prices do apply, but more to brand new buildings, or buildings in "hot" neighborhoods.

deathflute• 16 years ago

I agree. 2000$ is a _very_ cheap 1 BDR in manhattan, more likely an "alcove" studio. You really have to go 2500$+ to have anything decent.

stevoski• 16 years ago

Are you figures in real terms or nominal terms? If nominal, then sentences like "where once you could build a house for $80k, now anything less than $150-200k is unrealistic" are unsuitable for building an argument upon.

nostrademons• 16 years ago

A lot of his point was that there's a difference between real and nominal terms. He was saying real estate is a hedge against inflation; in that context, saying that "the $80K house 10 years ago now costs $150-200K" is perfectly relevant.

teyc6• 16 years ago

Since housing is a proxy for net migration, what are the stats for NYC?

hartror• 16 years ago

Small nitpic: your example of a house in Perth is out on the end of the bell curve. Perth has seen explosive growth driven by the resources boom, which have driven more people with more money to the west.

rdouble3• 16 years ago

Veering off-topic, but how do people in Australia rent apartments? It seems the answer is NOT "craigslist."

Also, from just walking around Melbourne and Hobart, it seems that Australian cities are more ownership oriented than major American cities. I've seen maybe 2 "for rent" signs. Am I just not seeing the rentals?

cletus6• 16 years ago

In America it's common for one company or landlord to manage an entire building. In Australia that's extremely rare. In NYC for example, you have co-op buildings, which is a new concept to me. Australia really has no equivalent. Pretty much all apartments in Australia are "condos" in American nomenclature (it's not a word Australians use).

Real estate agents list properties for rent, typically in their windows, on their website, in the newspaper and/or on one or both of the big property websites (RealEstate.com.au and domain.com.au). That's one thing I like: when looking for a rental you only really need to check those two sites.

It's unusual to put a "for rent" (or "for lease") sign up. "For sale" sure.

You can rent something directly from the owner but it's reasonably unusual. Even if the owner finds a tenant they'll typically use a real estate agent to manage the property (do inspections, organize maintenance, take the rent and so on).

So anyway, the lack of rental signs doesn't mean anything. In my experience you only see them in front of larger buildings on the lower end of the economic scale.

timcederman2• 16 years ago

Last time I had to rent in Australia, which was 5 years ago, it was a combination of the newspaper and property managers. I went to each real estate agent in the area I wanted to rent, and they each had a large list of every property available in the area. Some they had keys for, which they gave you in exchange for your ID, so you could go look at them on the spot.

It's a lot more common in Australia for people to use property managers, and a lot less common to have large commercial rental properties. I believe gumtree.com.au and housemates.com.au are both popular now.

light3• 16 years ago

It's very similar to craiglist actually, theres many sites that advertise privately rented houses and shared rooms, e.g http://gumtree.com.au

brc6• 16 years ago

Very few 'For Rent' signs because most Australian cities have a rental shortage, at least in the heart of the city. I have a property in Brisbane that has been vacant for 3 weeks in the last 10 years. It is highly unusual for it to be vacant between tenancies.

The reasons are varied, but increased planning laws and high immigration means that the supply of city properties is not keeping up with demand.

And yes, home ownership is very big in Australia.

timcederman2• 16 years ago

Buying property in Australia at the moment would appear to be highly risky. I was hesitant back in 2002, and it's far worse now. The only thing that has kept prices high is the incredible increase in rent, which I'm still struggling to fathom. In 2004 I was renting a 110^m 2 bedroom apartment on the Brisbane river for $780 a month.

Australia has managed to inflate their housing market further, thanks to government intervention, and it seems that it needs to pop at some point. Long term, these types of capital gains in housing are unprecedented.

Here's a good summary. http://en.wikipedia.org/wiki/Australian_property_bubble

brc6• 16 years ago

Brisbane is an interesting case. Between about 1992 and 2002, property in the city went basically nowhere value wise. I bought a property in 2001 for 20% less than the owner had paid in 1994. Then, in about 2002/2003, it nearly doubled overnight and has never looked like going back. I foolishly sold a house in 2002 which was listed 2 years later and brought more than double the price I had bought it for. It's again in a long slow slump (compared with inflation) - this is likely to persist for some years. So your experience exactly covers the period of greatest growth in Brisbane.

I agree with you, though, current conditions make it risky. However for the OP now would be a good time to convert some USD into well-located Australian property.

brc6• 16 years ago

I met someone once who purchased their place in Manhattan in November 2001. At the time it couldn't be lived in, but they had faith that the city and the affected area would recover, which it has and I think they would have done well. The thing with buying property anywhere is that it always seems like a bad deal, but that's because most people underestimate the propensity of governments to inflate currencies. It doesn't take many years of high inflation for 'real' things like property to quickly rise in value. And, purchasing at the top of bubbles notwithstanding, most of the time the land value underneath the property will stay pretty constant. The house itself must be seen as a depreciating asset, but the land underneath will increase in value as long as the location is both desirable and economically growing (even better if it is above trend of the economy).

The problem with long-term renting is that, while you can theoretically engineer a better return by allocating as much as the principal component of a mortgage payment to one or more investment classes - most people don't. The key benefits to owning a property are (IMO) * inflation hedge * forced savings (the principal component of your mortgage) * security of tenure * ability to modify the property as needs arise (like extending, remodelling, putting in network cables and server racks!) * access to further credit for other investments after equity is accumulated

These things vary country by country but the list is pretty much constant. The most important thing is to not get carried away and only purchase what you can realistically afford, and to allocate as much money to paying down the mortgage in the first 5-10 years.

As for the yield equation - like value stocks, it's where the story is. Most places at some point or another in their economic cycle will end up where the yield is very attractive, and that's the time to buy. And, as a wise old italian investor who could buy and sell me many times over once told me (after I made my first mistake) : never sell your property. Ever. Buy right in the first place and keep forever. If you find yourself hearing everyone say that real estate is a bad investment and see that rents are approaching mortgage payments, then buy as much as you can as quickly as you can.

The last 50 years has been the story of real estate growing in value. This may or may not repeat over the next 50 years, because demographics, national politics and household formation have all changed in that time. But inflation has been with us since the first clever financier decided to use paper money, and will stay with us while that is still the case. If you purchase with your head and don't listen to anyone else, you'll do fine.

Finally - on the lowest economic growth - in Australia, in the USA - in a lot of places - the cheap credit of the '00s has led to an over-investment in residential property. This takes credit and investment away from other parts of the economy where it could be used productively. And it results in banks being dangerouslly over-exposed to residential property as an asset class. I think this needs to be addressed, and pro-ownership govt programs(see FHMC in USA, First Homeowners grants in Aus) need to be dumped, despite the short term pain this would cause. Because the economy isn't going to get going again until all the bad debts and bad investments are cleared up and swept away.

newmediaclay• 16 years ago

> 5 years later? $350k minimum. There was a structural change in the economy that hasn't since reversed and doesn't look like ever reversing.

This was the fallacy that got the US into so much trouble. When real estate rises quickly and consistently, people think it's a guaranteed perpetuity. That's not the case. Any investment can go down in value and almost surely will at some point in time.

Daisy• 16 years ago

Hi everyone,

Thanks for your feedback & questions. Just wanted to chime in and hopefully clarify the methodology that goes into Trulia's Rent vs. Buy Index. To make an apples-to-apples comparison, we only looked at the median list price and annualized median rent for two bedroom apartments, condos and townhouses in the 50 largest U.S. cities based on population. As such, this index does not look at single family homes.

To calculate the actual ratio, we divide the median list price by the annualized median rent. Here's a sample Price-to-Rent Ratio Calculation: ---Median List Price: $140,201.37 ---Median Rent: $1,871.65 ---Price-to-rent ratio: $140,201.37 ÷ ($1,871.65 x 12) = 6

To interpret this ratio: ----Price-to-Rent Ratio of 1-15: It is much less expensive to own than to rent a home in this city. ----Price-to-Rent Ratio of 16-20: It is more expensive to own a home in this city. The total costs of ownership of a home in this city are greater than the costs of renting, but it might still make financial sense depending on the situation. ----Price-to-Rent Ratio of 21+: The total costs of owning a home in this city are much greater than the costs of renting.

By using 15 as our baseline for the interpretation key as opposed to 12 (which would only account for a year's worth of rent), we are able to account for the additional costs such as property tax and homeowners insurance.

Of course, we understand that the decision to buy or to rent is a deeply personal decision based on ones unique financial situation. The Rent vs. Buy Index was designed to be a guide to help folks gauge whether it's more affordable to buy or to rent a home in one of the 50 largest cities.

Feel free to contact us with any additional questions. We love the lively conversation and appreciate everyone's comments.

Cheers! Daisy Kong PR Manager, Trulia pr@trulia.com

showerst6• 16 years ago

This is a great infographic idea, but the census 'incorporated city' boundaries/populations is not that good of a data set for this use case.

Metropolitan statistical areas would've been a more reasonable choice here, since in many cities the city proper (as defined by incorporated bounds) is either vastly under or vastly over-priced compared to where people actually live, not to mention throwing off the relative populations.

As an aside, the way my map renders, Baltimore is north of New York =P. Great job though, and kudos to your developers for not using flash =)

zach• 16 years ago

The difference between metropolitan statistical areas and cities is particularly noticeable with respect to Miami.

The city itself is only the 42nd largest in the country (population 450K) but the MSA (which includes Fort Lauderdale and many suburbs) is the country's 7th-largest (population 5M+).

leelin2• 16 years ago

  By using 15 as our baseline for the interpretation key as
  opposed to 12 (which would only account for a year's worth
  of rent), we are able to account for the additional costs
  such as property tax and homeowners insurance.

Sorry you completely lost me on this line of reasoning, and I actually suspect you've got it quite wrong.

Why does 12 account for a year of rent as you say? The ratio is already the price of the house divided by the ANNUAL rent, is it not? Why 15 vs 12 vs 20 vs 30??? Also, additional costs of homeownership like tax and insurance means you should demand a LOWER ratio to truly make the cost of renting and owning equal, not higher as you suggest!

My understanding is the ratio is basically a proxy for the P/E ratio (just like P/E ratio in stocks). It is the price of the house divided by the income you would receive renting it. That ratio can float to whatever the market is willing to pay.

The graphic on Trulia specifically says though that the ratio is the point where renting == buying. How do you get 15?

One metric some people in this discussion are using is the ongoing carry costs of buying vs renting. With borrowing costs at 5% interest rates on 30-year fixed mortgages, along with a 40% marginal tax rate in places like NYC and SF, then the ratio that makes buying and renting about equal is much higher than 15; it has an upper bound at 33, because you can borrow at 3% factoring in tax deduction (1.00 / 0.03), but needs to be adjusted to account for HOA dues, real estate taxes, state income tax, nasty transaction costs, etc.

joubert• 16 years ago

I live in the city and am very curious why the foreclosure rate is shown as 0%.

parfe• 16 years ago

My guess was enough demand to move a property before foreclosure occurs, but just a guess.

martin• 16 years ago

People who have equity in their homes don't typically foreclose, and owners in NYC typically still do. Two reasons for that. First, property values in NYC haven't dropped as much as in other areas. Second, co-ops constitute a very large percentage of the purchasable housing in Manhattan (and in some of the outer boroughs as well). Nearly all co-ops subject you to a very invasive board approval process where you need to reveal everything there is to know about your income and assets. They want to know that you're making more than enough money to meet your expenses and that you have sufficient reserves to cover yourself through any period of hardship. Co-ops also usually require a sizable down payment (almost always at least 20%, sometimes even 100%). If you seem risky, you don't get in. So there's definitely less of an opportunity for shenanigans with exotic mortgage products and the like than in other cities.

codex• 16 years ago

This visualization assumes that a condo for sale is the same quality as an apartment for rent. At least in Seattle, that is not true--there has been a rash of (ill advised) condo construction in the area which has resulted in a lot of really nice two bedroom condos for sale, with new construction and spectacular views. Two bedroom apartments on the market are nowhere near as nice--and, of course, nowhere near as expensive. That's not to say that the condos aren't overpriced, just that the distribution of supply may not be uniform in every city.

ck2• 16 years ago

I see it as a visualization of where "old money" has gobbled up the realestate.

grav1tas2• 16 years ago

What would be cool on top of this is if they figured in mortgage prices, the average home upkeep costs for a certain area, insurance prices, and property taxes (whew, it'd be hard) to determine if you're flat out better of renting or buying in an area over an arbitrary period of time. This has always been something I've wondered about, whether or not buying a home or renting an apartment is actually cheaper based on a bunch of different factors. In the US, there's always this big push for home ownership, but sometimes I question the wisdom (financially) of buying a home for 'equity building' or whatever else. That's not to say that owning your own home can't be totally fun and a great place to raise a family or whatever else..obviously that's pretty hard to weigh objectively, but still. I think this would be an interesting direction for this site to go.

callmeed• 16 years ago

I was talking to a real estate broker from phoenix on my flight last weekend. He said you can buy distressed homes for < $100k and condos/townhomes for < $50k. He's got clients buying properties, renting them in less than a month, and having instant positive cash flow.

tocomment• 16 years ago

Any tips on where to find them? When I look through the mls I see very few forclosures.

brc6• 16 years ago

I don't have any tips but you're very unlikely to find any good deals on the internet. I would identify a target area and devote 3-5 days just hitting the ground and running the numbers on places. You should know the numbers already so when you see a place you know whether it is pass/fail on inspection.

It's a universal rule of Real Estate that good deals never reach the paper, the internet or even the front window of the agency office. In fact they rarely make it past the first page of the agent's buyers contact sheet. Find an agent in the area you want to buy in, make it clear to them you are serious and give a definitive description of what you want to buy. Make it easy for them to do their job. Every agent wants to sell a place on the way back from getting a seller to sign up. Your number must be on the list of people to call. But don't give them a loose description or they will try and sell you the first piece of crud they find. Be very clear on the description and list out factors that will disqualify a property (main road, certain neighbourhood, certain type of construction, etc).

Start making offers. Sooner or later you'll end up with a place.

mtigas• 16 years ago

The choice of a red-green gradient is probably not wise, considering the prominence of people with red-green colorblindness. ( Screenshot http://bit.ly/fcRHRk vs filtered screenshot http://bit.ly/frqlxP — Note the similarity of NYC and Jacksonville.)

Otherwise, I really dig the execution of the map.

EDIT: Cached the filtered screenshot so as to not hit the (relatively slow) colorfilter.wickline.org server.

jacques_chester10• 16 years ago

I have come to the conclusion that buying to occupy is no longer a rational decision.

Consider a grid. On one axis, housing purchases are cheap or expensive. On the other axis, the local economy is vibrant or moribund.

Hence:

  * Cheap + Vibrant: Basically doesn't exist.
  * Cheap + Moribund: Bad place to buy, you're tied to a high-risk location.
  * Expensive + Vibrant: Purchase cost will eat up the advantage of the local economy.
  * Expensive + Moribund: Get out ASAP.

Why buy anywhere?

Similar logic applies to buying to rent. Why not diversify? Long term rates of return on share indices are competitive with property and do not have mortgage risk. They also don't have local property market risks. Vanguard will set you up with an international share fund, hedged or unhedged, very cheaply and easily.

kscaldef• 16 years ago

> On one axis, housing purchases are cheap or expensive. On the other axis, the local economy is vibrant or moribund.

Neither of these things is binary.

jacques_chester10• 16 years ago

If it wasn't clear, I'm using "axis" in the sense of continuous values.

teyc6• 16 years ago

ahh I've heard of that before. It is the idea that markets are perfect. But in reality, you only need to find one house that is improperly priced. Given banks are pretty tight on lending now, a borrower who can convince the bank to lend is better placed to offer a lower price.

MichaelSalib2• 16 years ago

Eh, what are the odds that you're actually good at finding such a house?

I mean, everyone thinks that they're an above-average driver; people naturally overestimate their own skills. And most people have absolutely zero training or practical experience in assessing either real estate markets or houses. And buying a house is not an emotionally neutral task that most people can remain clinically detached from: most people can't help looking at a house to buy and seeing their future there, visualizing their kids growing up there, etc. So they're likely to be emotionally attached to any house they like well enough to buy, which further reduces their ability to make a rational decision.

My claim is that for every person who is actually skilled at this, there are many more who think they're skilled but really are not skilled at all.

lwat• 16 years ago

Yea I kind of agree. From my perspective it only makes sense to buy if you really plan on living in the place for many years. And I'm too young for that kind of commitment so renting makes the most sense for me.

elai• 16 years ago

When you get to cheap+nice to retire, it's a good idea!

jongraehl• 16 years ago

Further, the 'security' of a long term fixed mortgage at present low rates (as in: who cares if home prices drop because interest rates go up), is only useful if the economy remains locally vibrant, i.e. rents don't plummet.

If you don't mind the stress and time, and are capable of selling quickly in a falling market, perhaps you should decide to buy when you're more than willing to bear the huge round-trip within 3 years transaction costs (scaled by your estimated probability of this happening).

cincinnatus• 16 years ago

Use of City boundaries instead of MSA makes this inaccurate and not terribly useful as a tool for understanding anything about these markets, let alone making decisions from.

hugh32• 16 years ago

A note on the chart: it's very pretty, but why? As soon as you load it up you see cities floating around the map in a way that cities really don't. And once they stop floating around, the cities aren't quite in the right geographical locations; to find the unlabelled dot that's Oakland I had to first click on an unlabelled dot that happens to be Sacramento.

scblock• 16 years ago

This data seems extremely unreliable. For example, it claims that in KC you might be better renting, then lists a buying price range of $200-$300k. Then hop over to Denver and it says buying might be better, with a price range of $100-$200k. I've lived in both cities and looked at houses in each, and it is much, much more expensive to purchase a house in Denver than in the Kansas City metro.

monkeypizza• 16 years ago

Ha. The ratio of buy/1 year rent is about 100 in Beijing.

This despite the fact that you are not legally allowed to own property in the first place - and that the average lifespan of a building is 20 years.

bhavin• 16 years ago

Did anybody notice the buying range for many cities was shown starting from 0 ( e.g. 0-100k )... I wonder what that means?

Rent vs. Buy Visualization of Top 50 Cities

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