Zillow Reviews Bumpy Road Toward Stabilization

Home values in the United States fell 0.4 percent from the first to the second quarter of 2011, the smallest quarterly decline in more than four years, according to Zillow's second quarter Real Estate Market Reports. The Zillow Home Value Index fell 6.2 percent year-over-year to $171,600. Home values have fallen 28.8 percent since they peaked in June 2006.

Regionally, home values fell on a year-over-year basis in 142 of the 154 metropolitan statistical areas (MSAs) covered by Zillow and were flat in eight. In the short term, however, nearly two-thirds of MSAs (94 of 154) experienced home value appreciation, with the Zillow Home Value Index rising from the first to the second quarter.

Negative equity fell slightly to 26.8 percent of single-family homeowners with mortgages in the second quarter, down from 28.4 percent in the first. A homeowner is in negative equity when they owe more on their mortgage than their home is worth.

Meanwhile, the rate of foreclosure re-sales declined from its peak in March 2011, when 21.4 percent of all sales were foreclosure re-sales. In June, 19.7 percent of sales were foreclosure re-sales.

"While there are many positive signs in the second quarter, and it is clear the post-tax credit free-fall of home values is over, we're not out of the woods yet," said Zillow Chief Economist Dr. Stan Humphries. "It is very encouraging that two-thirds of markets in our report experienced home value appreciation, but we have to remember that this is coming on the heels of one of the worst quarters since the housing recession began.

"We expect a bumpy road ahead. There will be many ups and downs in home values before this is over, and we continue to expect a true bottom in 2012, at the earliest. There are still hazards in the form of a full foreclosure pipeline, high negative equity and fluctuations in demand."

While nearly two-thirds of markets showed appreciation from the first to the second quarter of 2011, far fewer have recorded a longer period of stabilization. Only 25 of the 154 MSAs covered in Zillow's Real Estate Market Reports showed two consecutive quarters of appreciation. Among those MSAs were Washington, D.C., where the median home value increased 1.7 percent from the first to the second quarter after increasing 0.2 percent from the fourth quarter of 2010 to the first of 2011; and Pittsburgh, where home values increased 2.8 percent from the first to the second quarter, and increased 0.1 percent from the fourth to the first quarter.

Should You Buy or Rent?

Is Owning a Home Still the American Dream?

A friend of mine recently called asking me whether it makes more sense to rent. He had been considering purchasing a home in the mid-West and was beginning to rethink the decision.

With lower home prices, high affordability and low interest rates, you might think its a no-brainer. But it isn't. Sure, you have to live somewhere, but if you're thinking of a home as an investment, what other investment would you consider if you thought it may be worth less a year from now?

Speaking at the National Multi Housing Council Mid-Year Apartment Strategies Finance Conference and Board of Directors meeting held recemtly in Palm Beach, FL, industry experts examined how apartments will change based on the preferences of today’s renters.

Observers and insiders say today’s renters want urban locations within walking distance of entertainment and employment.  They are willing to accept smaller apartments to lower their rent in these more expensive downtown neighborhoods, but they expect developers to incorporate more usability into a smaller footprint.  They are also very social and want places around the property to congregate.

Renting, it seems, is becoming a new normal.

A recent article in the Dallas Morning News supports this notion. In the June 2, 2011 article, Shontina Kuykendoll tells the reporter she's renting in part because she fell in love with a downtown neighborhood. The article also points out that more than 50 percent of residents in Dallas- a relatively affordable market, rent. Moreover, the U.S. homeownership rate is at the lowest level in more than two decades and still falling. Some 3 million have been converted to renters since the crash began around 2008.

So does it make some sense to rent? The calculators I tried with my friend suggested it does. After five years and spending just $125,000 on a home vs. $700 in rent, these programs suggest he'd actually be $7,000 or more ahead by renting than buying. We had to adjust the home price down to the high $70K's to tilt the scales towards buying.

That's not always the case. I tried it on the home I live using my purchase price and the current rental rate suggested by Zillow.com. It says I would save almost $20K by buying. Buying is better than renting, however only after four years. Recently relocating to DFW and then deciding to move again after only 1.5 years means taking a considerable hit. In the home I am planning to move to, this calculator says buying is better than renting only after seven years! My parents home in a small town in Pennsylvania came up with buying beating renting after only two years, however.

Today some people are choosing to rent because it is their preference. In many cases you can live in a more walkable area with amenities built for pedestrians if you choose to rent instead of buy. Other people are renting because they own a home somewhere else which they haven't been able to sell. In the process they may be sold on the conveniences of renting.

Should you rent or buy? These questions are not always easy to answer. The longer you plan to stay in a home, the more likely buying is the answer. The more frequently you move and the less time you spend at home, may tilt the scales towards renting.

The scales now may over-all tilt towards renting, and this is due to more than just problems in the housing market. It has to do with demographics, fuel prices and a simple change in preferences. Walkable urban life is in vogue, and in many cases there's a lot more availability and affordability in those areas with rental units.

As for my friend, I suspect he wants to own whether or not it makes perfect financial sense. There's also a case to be made for spending your money on something you desire.