Look Back at Real Estate Market Shows That Timing Matters

SEATTLE, July 9, 2015 /PRNewswire/ -- The Breakeven Horizon analysis from Zillow® found that homeowners can still break even on a home purchase in less than two yearsⁱ, even while many buyers who bought 10 years ago have not broken even.

The analysis, which looks both forward – at how buyers can expect the market to perform – and backward – at how buyers fared at different points in the housing crisis and recovery – found that many buyers lost money in the housing market simply by buying before the market had bottomed out.

For example, millions of buyers took advantage of the federal homebuyer tax credit in 2009 and bought a home before the market had fully bottomed out. In most of the country's 35 largest housing markets, those buyers would have been better off financially if they had rented and put their money anywhere else – stocks, bonds, or even in their bank account.

On the other hand, buyers who bought in 2012 fared much better and made more in the housing market than they would have even if they had rented and invested their savings in the recently bullish stock market instead.

The wide range of outcomes is a result of the U.S. economy's boom, bust and recovery over the past decade. The first time homebuyer tax credit was part of a government effort to spur economic recovery as the country emerged from the Great Recession, but it came before the market had fully hit bottom.

Buyers in the country's hardest hit housing markets found the greatest opportunities if they bought at the right moment.

For example, Las Vegas homebuyers who bought in 2009 are $66,043 worse off on average today than if they rented and invested in the stock market over the same time periodⁱⁱ. That loss far overshadows the $8,000 maximum tax break. Conversely, those who bought a Las Vegas home in 2012 made $52,000 more between 2012 and 2015 than they would have if they had rented and invested in the stock market, even without a tax break.

"It's very clear that when it comes to maximizing gains from an investment in real estate, timing really does matter a great deal," said Zillow Chief Economist Dr. Stan Humphries. "However, timing isn't everything, and trying to time the market perfectly is incredibly difficult, even for professionals. There are any number of factors to consider when purchasing a home, only one of which is the potential for financial gain. Potential buyers should always place their personal needs and their family's needs first, and make the decision to buy only when they are ready to make a significant investment of both their time and money. Just because the math might say to buy or rent in a given area, personal preferences and situations vary greatly, and there is no one answer that is right for everybody."

Zillow's Breakeven Horizon for the U.S. remained flat from the previous quarter in the first quarter of 2015, as rising rents made it advantageous to buy rather than rent. Buyers in Los Angeles who would have waited more than five years to break even on a home purchase made a year ago can now break even in 4.3 years.

The amount of time it takes to break even on a home is now more than a year in all of the 35 largest housing markets. It is two years or less in 23 markets. Dallas-Fort Worth buyers can break even the fastest, in 1.1 years. Breaking even takes the longest in Washington D.C. (4.5 years) and Los Angeles (4.3 years).

Zillow's Breakeven Horizon incorporates all costs associated with buying and renting, including upfront payments, closing costs, anticipated monthly rent and mortgage payments, insurance, taxes, utilities, maintenance, and renovation costs. The horizon also factors in home equity growth, for buyers, and, for renters, income earned if they invested the same amount of money into an interest-bearing account. It also factors in historic and anticipated home value appreciation rates, rental prices and rental appreciation rates.

About Zillow

Zillow® is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with the best local professionals who can help. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow's Chief Economist Dr. Stan Humphries. In 2015, Dr. Humphries co-wrote and published the New York Times' bestselling "Zillow Talk: The New Rules of Real Estate." Dr. Humphries and his team of economists and data analysts produce extensive housing data and research covering more than 450 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. Zillow also sponsors the bi-annual Zillow Housing Confidence Index (ZHCI) which measures consumer confidence in local housing markets, both currently and over time. Launched in 2006, Zillow is owned and operated by Zillow Group (NASDAQ: Z), and headquartered in Seattle.

Zillow is a registered trademark of Zillow, Inc.

ⁱ The breakeven horizon is the number of years after which buying is more financially advantageous than renting (at the precise breakeven horizon one can be indifferent between buying and renting). We computed the breakeven horizon for each household by comparing the costs of owning a home versus renting a home at the end of each year for 30 years (assuming the house is purchased using a 30 year fixed mortgage). Our buy versus rent analysis incorporated all possible costs incurred when purchasing a home as well as those incurred when renting a home to make the comparison between these costs as realistic as possible. The full methodology can be found here: http://www.zillow.com/research/rent-vs-buy-breakeven-horizon-analysis-methodology-updated-3549/

ⁱⁱ  This analysis assumes a 20 percent down payment.

SOURCE Zillow