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IN THE NEWS:
America's cheapest housing markets
In these markets, it costs barely more to buy than it does to rent. So what are you waiting for?
By Prashant Gopal of BusinessWeek
Pittsburgh ranks No. 2 in BusinessWeek's rankings of America's cheapest housing markets. © Getty Images
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Home prices have dropped so much that the cost to own and maintain a house in many metros is only a bit more, and sometimes even less, than the cost of renting.
BusinessWeek.com teamed up with research firm Reis to rank 20 metros where it's almost as cheap to buy as it is to rent. (Reis made the calculations using its own second-quarter rent data and second-quarter home value data from Zillow.com.) We found two metros, Detroit and Pittsburgh, where renters can actually lower their monthly expenses by buying. The rest of the list, featuring metros where buying was only slightly more expensive, included Rochester, N.Y.; Memphis, Tenn.; Tampa, Fla.; Cleveland, Tenn.; Columbia, S.C.; Dallas; Las Vegas; and Providence, R.I.
To create a fair matchup between owning and renting, we calculated ownership costs assuming a fixed 30-year loan for 100% of the purchase price with no down payment. If we had instead decided to factor in a 20% down payment, owning would have been the cheaper option for the top 10 metros on our list.
What's your home worth?
"It's a great time to buy," says Mollie Carmichael, senior vice president of John Burns Real Estate Consulting in Irvine, Calif. "If you can own a home for less than the cost to rent, then it's a logical financial proposition."
An opportunity for new buyers
The housing slump has brought the own-versus-rent equation closer to where it was before the housing bubble drove sale prices way above rental costs. (Rents are also falling now, but at a much slower pace.)
Slide show: The 10 cheapest housing markets
The foreclosure crisis has trampled down prices from Tampa to Riverside, Calif. And low interest rates and government incentives such as the $8,000 first-time homebuyer federal tax credit, which expires this year, are attracting new buyers previously priced out of the market. The American dream is getting more affordable. In Tampa, for example, owning was 15% more expensive than renting in the second quarter. But it was 46% more expensive than renting a year earlier.
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Greg Ghodsi, senior vice president at Raymond James in Tampa, says buying a principal residence in Florida now makes more sense than it did during the housing boom.
"If you have a job and are looking for a primary residence, you can get places here in Tampa that aren't cheap, but relative to where they were, are fairly priced compared to renting … The whole equation has changed," Ghodsi says.
Be prepared to stay awhile
Of course, different people have different notions of what cheap means and buying isn't an option for everybody. Many renters are now losing jobs and banks are raising standards for mortgages. And the housing market still poses significant risks as prices continue to fall and foreclosures rise. Stan Humphries, chief economist at Zillow.com, says prices are likely to continue to fall and then begin to appreciate slowly, so buyers should plan to stay put for a minimum of five to eight years or risk making a loss.
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"It's a fool's errand to try to time the bottom for both economists — and buyers and sellers," Humphries says. "If you found a house that you love and want to be in for a long period of time, now is potentially a good time to wade into the market."
With the first-time homebuyer tax credit expiring and the possibility that interest rates will start rising, it might pay to act quickly, says Victor Calanog, director of research for Reis. But rents are dropping, too, so tenants might also be able to cut monthly expenses by seeking out apartments with lower rents or concessions, he says.
"This might be the time to seriously evaluate the decision of whether to rent or own," Calanog says.
The 10 cheapest housing markets
View the rest of the top 20 cheapest housing markets on BusinessWeek.com.
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The 30 Strongest Housing Markets in the U.S
Rank: 6
Metro: Pittsburgh
Share of homes with increasing values: 48.80%
Median value: $108,700
Annual change: -2.89%
Quarterly change: 0.12%
Pittsburgh, once a thriving steel town, now has a more diversified economy that includes biomedical, health, and education. Major employers include the University of Pittsburgh and Alcoa.
The Strongest U.S. Housing Markets
Many U.S. markets that avoided the housing boom are now seeing the greatest growth in home values
By Prashant Gopal
They're easy to overlook, with home prices plunging from Manhattan to Los Angeles and almost everywhere in between. But look at the smaller metros where housing bubbles never took shape, and you'll find some of today's strongest markets.
Boulder, Colo.; Fayetteville, N.C.; Pittsburgh; Little Rock; and other slow-but-steady metros are now among the nation's safest markets, and many of the homes in those markets continue to appreciate, if only modestly.
These are metro areas "where folks didn't bake 10% to 12% increases into their financial expectations," said Stan Humphries, chief economist at real estate site Zillow.com. "That was a good expectation to have."
Working with data from Zillow.com, BusinessWeek came up with the strongest housing markets by ranking metro areas based on the share of single-family homes in which values rose in the second quarter compared with the second quarter of 2008. In the top-ranked metro, Boulder, an affluent Denver suburb that is home of the University of Colorado at Boulder, 59.39% of homes appreciated during the past year, and the median home value rose 2.12% on a year-over-year basis.
No. 1: Beautiful Boulder
Boulder was one of several college towns on the list, which also included a few military towns such as Fayetteville, N.C., and Jacksonville, N.C. Both government and university jobs have been relatively reliable during this recession. Affordability also seems to be a plus in this economy. Oklahoma City; Tulsa; Binghamton, N.Y.; Springfield, Ohio; Cumberland, Md.; and most other metros on the list have median home prices below $200,000 (some are under $100,000).
Boulder has several factors working in its favor. The town has controlled growth by putting limits on development and by acquiring more than 50,000 acres of open space for a greenbelt that surrounds the town. With the boundary of the Rocky Mountains to the west, the supply of new homes has been restricted.
Boulder's economy and housing market have slowed, but the University of Colorado provides jobs and a steady flow of tenants for the area's many rental homes. Demand for housing is also strong in part because the area is so pretty, said Tom Thibodeau, global real estate capital markets professor at the University of Colorado.
"Every year 5,000 undergraduates enter, and they don't want to leave when they graduate," Thibodeau said.
New Orleans Thrives on Construction
The housing market in New Orleans, which ranked third on the list, has stayed relatively strong because of the rebuilding work after Hurricane Katrina, funded in large part by government subsidies. But demand for housing is also growing as people return to areas that were flooded after the levees broke in 2005.
Employment in New Orleans was down just 0.2% in the first half of the year, said Loren C. Scott, professor emeritus of economics at Louisiana State University. But construction-related jobs are among the only bright spots in the local economy. Many corporations, fearing that the levees being rebuilt are untested, have been reluctant to move into the city, he said.
"New Orleans has avoided some of the larger problems of the national economy," Scott said. "Normally, New Orleans would have been down much more if it didn't have the post-hurricane construction activity."
Metros in Upstate New York, where prices have always been affordable, have also stayed relatively strong. Binghamton, home of Binghamton University, part of the State University of New York system, came in at No. 4 on our list. The housing market here has started to slow and will likely be impacted by nearly 1,000 announced layoffs at the nearby Lockheed Martin (LMT) facility in Owego.
Since the median home value is only about $112,000 and the supply of available homes is limited, prices probably won't plummet. Builders concentrated in more lucrative markets during the housing boom.
"We don't have new homes just sitting empty," said Jennifer Arbach, president of the Greater Binghamton Association of Realtors. "We always thought it was a thorn in our side that we didn't have new construction, but it turns out to be a blessing in disguise. When other markets crashed, we kept on doing business."
to see the 30 strongest housing markets in the U.S.
Gopal writes about real estate Click here for BusinessWeek in New York.