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Buying home brings savings

Current conditions favor ownership over rising rental rates, a new report finds

By Amy Hoak



Trulia, a real estate website, says it's cheaper to buy a home than rent one in 100 of the largest metropolitan areas in the United States, including Hono­lulu.

CHICAGO » It's much cheaper to buy a home than rent one in 100 of the largest U.S. metropolitan areas — even in high-priced Hono­lulu — according to a report released Thursday by the real-estate website Trulia.

"Despite the recent (home) price rebound, rents continue to rise faster than (home) prices, and mortgage rates are near record lows," said Jed Kolko, Trulia's chief economist, in a news release. And that's leading to favorable homeownership costs in most corners of the country.

In its analysis, Trulia looked at the average price of all homes for sale and the average rent of all homes for lease on the website between the beginning of June and the end of August. Averages for the metropolitan areas include properties from the inner cities to the suburbs.

The report reflects increased affordability for homeowners compared with the winter, when Trulia last did this analysis. The last time around, it was better to buy in 98 of the top 100 markets, Kolko said. But mortgage rates have dropped since then, and rents have risen faster than home prices.

According to the report released Thursday, homeownership affordability, compared with renting, was highest in Detroit, where the average cost of owning a home is $349 a month and the average cost of renting one is $1,149 a month.

Other markets where homeownership affordability is high: Gary, Ind.; Oklahoma City; Lakeland-Winter Haven, Fla.; and Toledo, Ohio.

On the other end of the spectrum: Hono­lulu, where home affordability, compared with renting, was the lowest of the 100 areas. The monthly cost of homeownership in Hono­lulu is an average $1,519, and the monthly cost of renting is an average $2,007. That's a 24 percent difference of $488 a month.

Other markets where homeownership affordability is lower: San Francisco; New York; San Jose, Calif.; and Los Angeles.

For homeowners, Trulia assumed a 3.5 percent mortgage rate, itemized deductions at the 25 percent federal tax bracket, and a seven-year time horizon to hold on to the property. It included closing costs, maintenance, insurance and property taxes.

For renters it included security deposit and renter's insurance.

Even in a scenario where the homeowner could only obtain a 4.5 percent mortgage, didn't itemize on taxes and planned on staying in the home for only five years, it was cheaper to buy in 96 markets, Kolko said.

Despite more affordability to buy in many markets, often people can't take advantage, Kolko said.

"It takes years to save enough for a down payment, and it takes a high credit score to even qualify for a mortgage, let alone to get the best rate. In the recession, many people found it harder to save — and harder to keep up their credit scores," Kolko said in the release.

"Homeownership makes the most financial sense for people whose strong credit scores let them snag the lowest mortgage rate and who get the biggest benefit from deducting mortgage interest and property taxes from their income taxes," he said.

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bikemom wrote:
Any type of analysis such is this is complex, but it seems that the scenario used here does not fit most people. The analysis assumed a 25% federal tax bracket, which includes taxable income of $70,700 - $142,700 for a married couple filing jointly. That equates to at least $90,200 in adjusted gross income. The median household income for 2011 was about $50,000. I'd like to see how the analysis comes out for households at the $50,000 level.
on September 15,2012 | 02:20AM
tiki886 wrote:
$50,000 is 'per earner' not 'household' income. $81,600 is the 'household' income and it is different for each County in Hawaii.
on September 15,2012 | 09:31AM
bikemom wrote:
I was basing the $50,000 amount on U.S. census information that was recently released. The $50,000 is household income, as I stated.
on September 15,2012 | 10:57AM
tiki886 wrote:
I saw the same website. It is a per earner figure not a per 'household' figure.
on September 15,2012 | 11:08AM
bikemom wrote:
I'm not sure what website you visited, but here's a definition of "Household income"-- the combination of two income earners pooling the resources and should therefore not be confused with an individual's earnings.
on September 15,2012 | 04:51PM
tiki886 wrote:
With a 30 year fixed rate at 3.50%, for every $10,000 you borrow the payment is $44.90. If you divide that into $1,519, the factor is 33.831 = $338,310 loan amount. This is not a totally accurate calculation since the $1,519 is a net benefit amount after accounting for tax deductions of interest paid and property taxes. The household income also affects the amount of the deduction.

But if you add back the difference of $488 between the $1,519 and $2,007 rental amount, the loan amount jumps to $446,993

A household could qualify for a large loan amount but the other half of the equation is how much money do you have for a down payment?

on September 15,2012 | 09:49AM
bikemom wrote:
Even if a family had the required down payment, $450,000 or so doesn't buy much of a home these days, unless they are including condos in their analysis.
on September 15,2012 | 11:06AM
tiki886 wrote:
True. But for first time buyers who just need to get their foot in the door to own a home where a two bedroom town house is adequate for one or two children, the equity in a few years years can help the family upgrade to a larger home for a growing family.

When you ask the question who would buy the "luxury" condos that have been built over the past several decades such as Hokua, Koolani, Nauru Towers, Moana Pacific, Discovery Bay, Capitol Place, Pinnacle, Royal Capitol Plaza, Chateau Waikiki, Villa on Eaton Square and dozens of other condos that seem out of reach for the average family, they are the families that have bought years ago out on the Ewa Plane and now want to sell or perhaps rent their once primary residence and buy and live closer to the heart of Honolulu. This BS of "investors" from the mainland buying these properties are uninformed because they don't own any property of their own and see the world through envy and jealousy.

People who have bought condos in Salt Lake in the 70s and 80s now own their units 'free and clear' after 30 to 40 years of paying their mortgages and even refinancing along the way. With the equity that they have built up and the savings that they have accumulated, it is not unusual for couples to upgrade and buy another new "luxury" condo 'free and clear' without any mortgage loan. Many of these people are government worker retirees who spend their time going on cruises and gambling in Las Vegas with the rental income accumulated from purchasing multiple properties in the 70s and 80s.

Mainland "investors"? Give me a break.

on September 15,2012 | 02:19PM
allie wrote:
This report is flawed. But no question is becoming more viable in many communities with low interest rates.
on September 15,2012 | 08:09AM
Maneki_Neko wrote:
The monthly cost of homeownership in Hono­lulu is an average $1,519...

Uh, no.

on September 15,2012 | 08:42AM
Hapa_Haole_Boy wrote:
I caught that too Maneki. The only way I can think to explain it is that for people who took mortgages out many years ago, 15-25 yrs ago, their mortgages on average are close to this figure. Certainly, though, for those buying today, that figure is way low.
on September 15,2012 | 09:16AM
bikemom wrote:
See Tiki's note above. But I wonder if they included all of the costs of homeownership -- repairs, maintenance, real property taxes, etc.?
on September 15,2012 | 11:02AM
Maneki_Neko wrote:
Part of the flaw is the use of "average". Remember that 50% of Hawaii residents are below average intelligibly. I buy a house for $2 million; you buy one for $100,000. The average house sold is $1,050,000. Average is a relatively useless statistic in this situation. Median is better but I still want to see the quintiles. Bottom line is that too much critical information is missing for this story to have meaning.
on September 15,2012 | 11:38AM
bikemom wrote:
on September 15,2012 | 04:52PM
bobbob wrote:
I think the window for buying at a reasonble price this cycle is closing or has already closed. The record low interest rates are pushing prices much higher. The time to buy would have been 2009 - 2010. Buy at a much lower price, then refinance after the rates drop. A homebuyer now is dealing with much higher home prices (close to or equal to the 2008 highs) and low interest rates. Because the rates are so low, a new homebuyer now will have little or no chance to refinance to drop his mortgage payment lower.
on September 15,2012 | 09:26AM
bikemom wrote:
Not only that, but I understand it's much harder to even qualify for a mortgage these days.
on September 15,2012 | 11:02AM
tiki886 wrote:
Not so much 'harder' than it is a hassle to document every aspect of your household income, assets and liabilities. For example, if you have to depend on inconsistent income to qualify that varies such as tips, bonuses, and commissions, you need a track history of 2 years of receiving such income to average the amount over that period of time. And what complicates the qualifying process is if the income from the earlier year to the latest year is a declining income amount, you might have to involve a co-borrower but that is nothing new.
on September 15,2012 | 11:17AM
tiki886 wrote:
I'm waiting for rates to climb to its actual level of about 5% to 6% instead of the artificial level of 3%. When that happens, purchases will stall and prices will start to slide. And then baby, cash is King! I don't need no stinkin mortgage loan! What's selling today for $700,000 will be mine for $500,000 or less.

And if you bought your current home in this market with 10% down payment or less, you will find yourself underwater in one to three years.

on September 15,2012 | 11:31AM
Maneki_Neko wrote:
Get ready to wait. With an open ended QE3 commitment by the Fed, mortgage rates are destined to go down and stay down, as unbelievable as it seems, for the near future. That means prices up, up and away. Even Brewbaker forecasts a single family median in Hawaii of $800,000 in 3 years.
on September 15,2012 | 11:41AM
ukuleleblue wrote:
Average locals should never sell their house on Oahu. They might think they can get a huge windfall but they will never be able to buy it back. Even if you can sell for higher than the current market, don't sell. There are always rich foreigners who can outbid and buy up this whole island. We live in a very small market and the most desirable place on earth. Buy anything you can afford and never sell if you and your children and grandchildren want to stay in Hawaii. And don’t get foreclosed on. Get relatives to help you make your payments. Once you lose your house you will never be able to get a house again here.
on September 15,2012 | 01:11PM
tiki886 wrote:
Hmmmm? Who are these rich foreigners that you refer to? How do you know that an "investor" purchase is not a local buyer instead? Foreign and mainland investors are not buying individual single family homes. They cost too much to maintain and the rental income does not compare to the rate of return on other investment properties. Just ask Genshiro Kawamoto. A smart foreign or mainland investor would buy commercial property in Hawaii or buy timeshares.
on September 15,2012 | 02:35PM
Maneki_Neko wrote:
Currently, non-US buyers represent about 6% of residential real estate sales. That's not very much. It will likely grow over time as the dollar is further debased in value and visa liberalization takes effect in China and elsewhere. At one time up to 8% of sales (representing just under 1,000 units) were foreign purchases.

Foreign buyer do tend to jack up the comparable prices but this applies to trophy and top line properties so it's effect is minimal on the houses that local folk buy.

Ukuleleblue is consistently lacking in facts on his/her posts, especially those dealing with rail. Once again I find the need to spank this poorly calibrated poster with cold hard facts. Point: tiki886

on September 15,2012 | 03:06PM
HD36 wrote:
Your'e exactly right, and if you use that down payment and short US Treasury Bonds on the long end with leverage of 2x or 3x, you could probably use that money to buy it outright.
on September 16,2012 | 12:24AM
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