Look Back at Real Estate Market Shows That Timing Matters

Look Back at Real Estate Market Shows That Timing Matters

Look Back at Real Estate Market Shows That Timing Matters

The FINANCIAL -- 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, according to Zillow.

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.