Rents are up 4.5% year-over-year, and rental affordability is worst in Miami and New York.

The Housing Recovery Needs More Than Just Rising Prices

http://www.trulia.com/trends/2014/05/price-and-rent-monitors-april-2014/

In the boom-and-bust housing markets with the biggest price rebounds, construction activity is lagging. In contrast, the markets where construction has recovered include big-city metros with strong rental demand. Rents are up 4.5% year-over-year, and rental affordability is worst in Miami and New York.

The Trulia Price Monitor and the Trulia Rent Monitor are the earliest leading indicators of how asking prices and rents are trending nationally and locally. They adjust for the changing mix of listed homes and therefore show what’s really happening to asking prices and rents. Because asking prices lead sales prices by approximately two or more months, the Monitors reveal trends before other price indexes do. With that, here’s the scoop on where prices and rents are headed.

Yearly Price Gain Smallest in 11 Months, Despite Steady Monthly RiseNationally, asking prices rose 0.8% month-over-month and 2.8% quarter-over-quarter in April, seasonally adjusted. Those gains are in line with March increases and show that home prices continue to rapidly climb.

However, asking prices rose 9.0% year-over-year, which is the smallest year-over-year increase in 11 months. Why are year-over-year price increases slipping despite month-over-month and quarter-over-quarter increases holding steady? One reason is that the biggest price spike during the housing recovery happened between February and April 2013, and the year-over-year change in April 2014 no longer includes those months.

April 2014 Trulia Price Monitor Summary
	% change in asking prices	# of 100 largest metros with asking-price increases	% change in asking prices,excluding foreclosures
Month-over-month, seasonally adjusted	0.8%	Not reported	0.8%
Quarter-over-quarter, seasonally adjusted	2.8%	97	2.8%
Year-over-year	9.0%	97	8.4%
*Data from previous months are revised each month, so data being reported now for previous months might differ from previously reported data.

Construction Still Lags in Housing Markets with Biggest Price ReboundsThe housing markets with the largest year-over-year asking-price increases in April 2014 were Riverside-San Bernardino, Las Vegas, Oakland, Sacramento, and Detroit, all of which are rebounding from steep price declines during the housing bust. However, big price rebounds are no guarantee that a local housing market has recovered. In fact, construction permit data for 2013 – released last week by the Census – shows that markets with the sharpest price rebounds are still lagging in construction activity. Among the 10 markets with the highest year-over-year asking-price increases, only Los Angeles had construction activity in 2013 that was above the 1990-2012 local average. In Riverside-San Bernardino, Las Vegas, Sacramento, and Detroit, construction activity in 2013 was less than half of normal for those markets. 

Where Asking Prices Rose Most Year-over-Year, April 2014
#	U.S. Metro	Y-o-Y % asking price change, Apr 2014	2013 building permits relative to 1990-2012 local average	2013 building permits, per 1,000 housing units (2010 Census)
1	Riverside-San Bernardino, CA	21.0%	45%	6.2
2	Las Vegas, NV	20.0%	37%	10.2
3	Oakland, CA	19.3%	66%	5.1
4	Sacramento, CA	19.0%	36%	4.8
5	Detroit, MI	16.9%	32%	1.2
6	Bakersfield, CA	16.6%	61%	8.2
7	Atlanta, GA	16.1%	55%	11.2
8	Orlando, FL	15.2%	79%	16.5
9	Warren-Troy-Farmington Hills, MI	15.0%	49%	5.0
10	Los Angeles, CA	14.9%	103%	4.3
Among 100 largest metros. Construction permit and housing unit data from Census. Nationally, 2013 permits were 73% of the 1990-2012 average, and there were 8.5 building permits per 1,000 housing units.To download the list of asking home price changes for the largest metros: Excel or PDF.

If construction is lagging where prices are rebounding, where is construction running ahead of local normal levels? The San Francisco Bay Area is currently having a relative construction boom. In San Francisco, 2013 building permits were 185% of the 1990-2012 local average (that is, 85% higher than normal); San Jose permits were 147% of their own normal. Two other big, expensive metros – New York and Boston – along with their respective neighbors of Fairfield County, CT, and Middlesex County, MA – are also building more than normal. Most of the construction in these big-city metros is multi-unit buildings and will be rented as apartments rather than sold as condos. These markets are getting a boost in rental demand as more young adults find jobs, move out of their parents’ homes, and form their own households.

Of course, construction in San Francisco, New York, and Boston is high only relative to what’s normal in those metros, and “normal” in those metros is pretty low.  Relative to market size, measured by total housing units, San Francisco is building roughly one-fourth as much as Austin (7.8 permits per 1000 units in San Francisco, versus 29.5 in Austin), and less than Las Vegas and Atlanta are.

Where Construction is Highest Relative to The Local Norm, 2013
#	U.S. Metro	Y-o-Y % asking price change, Apr 2014	2013 building permits relative to 1990-2012 local average	2013 building permits, per 1,000 housing units (2010 Census)
1	San Francisco, CA	12.5%	185%	7.8
2	San Jose, CA	11.8%	147%	11.9
3	Austin, TX	10.1%	145%	29.5
4	Middlesex County, MA	7.4%	143%	7.3
5	Oklahoma City, OK	2.4%	139%	13.9
6	Houston, TX	9.8%	138%	22.2
7	Boston, MA	7.0%	131%	6.7
8	New York, NY-NJ	4.5%	130%	5.6
9	Orange County, CA	12.4%	127%	9.9
10	Fairfield County, CT	4.1%	126%	6.9
Among 100 largest metros. Construction permit and housing unit data from Census. Nationally, 2013 permits were 73% of the 1990-2012 average, and there were 8.5 building permits per 1,000 housing units. To download the list of asking home price changes for the largest metros: Excel or PDF.

Here’s the point: just because local home prices have rebounded doesn’t mean that a market has fully recovered. Nearly all of the markets where asking prices rose most year-over-year still have much less construction than what’s normal for those markets. Instead, builders are building in markets that avoided the worst of the bust and are therefore not having big price rebounds today.

Where 2-Bedroom Rental Costs More than 60% of Typical PaycheckNationally, rents have increased 4.5% year-over-year and are up more than 10% in San Francisco, Oakland, and Denver. Even though renting a home, like buying, is expensive in California, the two least affordable markets for renting are Miami and New York. In those markets, the median rent for a 2-bedroom unit costs more than 60% of the local average wage – that’s twice as much as the rule of thumb that housing shouldn’t cost more than 30% of your income. Granted, many households in expensive markets make ends meet by having more than one wage earner, living in less than a 2-bedroom, or having non-wage income. Still, renting costs only half as much, relative to local wages, in Seattle, Dallas, Houston, Atlanta, and several other metros as in Miami and New York.

Rent Trends and Affordability in the 25 Largest Rental Markets
#	U.S. Metro	Y-o-Y % change in rents, Apr 2014	Median rent, 2-bedroom unit, Apr 2014	Median rent for 2-bedroom, as share of average local wage
1	Miami, FL	6.6%	$2,350	62%
2	New York, NY-NJ	5.4%	$3,450	62%
3	Los Angeles, CA	5.1%	$2,350	54%
4	San Francisco, CA	17.0%	$3,450	51%
5	Oakland, CA	10.1%	$2,350	46%
6	Riverside-San Bernardino, CA	4.7%	$1,500	46%
7	Orange County, CA	3.3%	$2,000	45%
8	Boston, MA	2.5%	$2,300	43%
9	San Diego, CA	9.7%	$1,900	43%
10	Washington, DC-VA-MD-WV	0.4%	$2,100	37%
11	Chicago, IL	4.7%	$1,600	37%
12	Baltimore, MD	6.2%	$1,550	36%
13	Philadelphia, PA	2.9%	$1,500	33%
14	Denver, CO	10.6%	$1,450	32%
15	Tampa-St. Petersburg, FL	3.5%	$1,100	31%
16	Seattle, WA	9.2%	$1,750	31%
17	Dallas, TX	3.8%	$1,400	30%
18	Minneapolis-St. Paul, MN-WI	3.5%	$1,300	29%
19	Portland, OR-WA	6.7%	$1,200	29%
20	Houston, TX	3.3%	$1,400	29%
21	Atlanta, GA	7.8%	$1,150	27%
22	Phoenix, AZ	7.5%	$1,050	27%
23	Sacramento, CA	6.8%	$1,150	27%
24	Las Vegas, NV	2.5%	$950	27%
25	St. Louis, MO-IL	6.1%	$950	25%
To download the list of rent changes for the largest metros: Excel or PDF. Wage data are from the Bureau of Labor Statistics for 2013 Q3, which only reports average wages, not medians.

 The next Trulia Price Monitor and Trulia Rent Monitor will be released on Thursday, June 5th.

How did we put this report together? To recap the methodology, the Trulia Price Monitor and the Trulia Rent Monitor track asking home prices and rents on a monthly basis, adjusting for the changing composition of listed homes, including foreclosures provided by RealtyTrac. The Trulia Price Monitor also accounts for the regular seasonal fluctuations in asking prices in order to reveal the underlying trend in prices. The Monitors can detect price movements at least three months before the major sales-price indexes do. Historical data are sometimes revised each month, and historical data in the current release are the best comparison with current data. Our FAQs provide all the technical details.

Jed Kolko, Chief Economist

Jed leads Trulia’s housing research and provides insight on market trends and public policy to major media outlets including TIME magazine, CNN, and numerous others. Jed’s background includes a Ph.D. in Economics from Harvard University and more than 15 years of publications and research management in economic development, land use and housing policy, and consumer technology adoption.