The Houston Chronicle’s real estate desk offered up another dose of “fake news” when they regurgitated Trulia’s latest edition of rent vs buy calculations. In Layman’s terms Trulia’s rent vs buy calculations are essentially worthless when it comes to Houston Texas. It’s amazing that Houston’s largest newspaper would even reference them. They are really that bad. I can only assume that our largest newspaper would rather sell ads than tell people the truth. The truth is that it’s not 42 percent cheaper to buy a home in Houston than it is to rent one.

Let’s start with Trulia’s readings on rent and purchase prices in Houston. In their spring 2017 analysis, Trulia shows a median rent of $1550 in Houston, and a median home price of $175,934. Based on their flawed methodolgy Trulia would have you believe that it’s 42.5 percent cheaper to buy a home than to rent one. How would they arrive at such a comical conclusion?

First it helps to realize that Trulia isn’t using the latest relevant data in their comparison. The April 2017 press release from the Houston Association of Realtors shows a median home price in Houston of $228,000. So it appears Trulia only understated the cost of purchasing a home by roughly $52,000 or 30 percent! Trulia shows the median price of a Houston rental at $1550. The April figures from HAR show that the average price of a single-family rental was $1715 while the average lease price of a Houston townhome/condo was $1557. Taking these figures into account, the median rental price cited by Trulia looks about right.

Now for Trulia’s methodology, or should we say comedy of ridiculous assumptions.

  • Trulia assumes buyers are putting at least 20% down on a purchase. If only that were true! Recent Freddie Mac loan data shows that almost half of owner-occupied purchase mortgages had loan-to-value ratios of 80% or higher.
  • Trulia assumes you are going to itemize your deductions at a 25% tax bracket. The truth is that if you are buying a $175,000 home, itemizing may not be worth your time. Unless you buy a more expensive home, you could be better off with a standard deduction.
  • Trulia uses a “quality-adjusted measure of home prices and rents”. OK.  Whatever the Hell that means.
  • Trulia supposedly calculates the total monthly costs of owning and renting, including mortgage payments, maintenance, insurance and taxes. That begs the question of what Trulia is using as a baseline for property tax rates in Houston Texas.
  • Trulia accounts for expected rent and price appreciation and also projected inflation. Never mind that this is a fool’s game.
  • Trulia also factors in one-time costs like closing fees, down payments, sale proceeds and security deposits. I wonder what they calculated for commissions?
  • Trulia then figures in net present value or the opportunity cost of buying a house instead of investing it. This is another fool’s game.

Taking a closing look at Trulia’s rent vs buy calculator you can see how ridiculous their assumptions really are. If you click on the advanced settings button, you can see that Trulia’s calculator defaults to a property tax rate of 1.17% for Houston Texas. Good luck finding a home with that setup! If you plug a more realistic property tax rate of 3 percent into the calculator, your savings drop rather sharply. Trulia also defaults to a homeowners insurance cost of 0.46 percent, again rather optimistic but doable. Trulia’s calculator completely omits HOA fees from the purchase equation, so again another big oversight. Add in $50 to $100 for a more realistic comparison.

On the bright side, Trulia does provide some very helpful information, within their calculator disclaimer…

“You should not take any action on the basis of the information provided through this calculator.” LOL! No kidding!

Buy vs Rent

As a reminder, all real estate is local. This is part of the reason why it is absurd for the local paper to regurgitate nonsensical rent vs buy conclusions based on flawed data. At the end of they day you need to do your own math, and make your own decision based on current accurate information. You certainly don’t want to base one of the most important decisions of your life on “fake news” that trumpets the merits of home ownership over renting by distorting the truth.

Houston Texas Housing Market