So are we in bubble territory? No. Bubble-phobes can rest easy. Even with recent sharp home price increases, prices are still low relative to fundamentals and are far below bubble levels.

Back to Basics: How to Spot a Bubble
To see a bubble, you first need to know what you’re looking for. A bubble in home prices (or in the price of any asset – like stocks or even tulips) is when prices soar above their fundamental value. Fundamental value is based on supply, demand, and realistic expectations about the future. We all learned in Economics 101 that prices move back toward an equilibrium determined by fundamentals of supply and demand. In a bubble, however, rising prices encourage speculation and fuel further demand – up until when the bubble suddenly bursts and people rush to sell, which causes prices to accelerate downward, sometimes well below their fundamental value. Bubbles are notoriously difficult to predict and hard to confirm until after they’ve burst: it’s impossible to be sure whether price gains are justified by fundamentals until, if and when, a bubble bursts. San Francisco home prices, for instance, are the highest in the country; is that “irrational exuberance” by speculative homebuyers, or are those prices justified by strong job growth, high incomes, great weather, and constraints on the local housing supply?

To answer that question, we assess whether home prices are overvalued or undervalued relative to their fundamental value by comparing prices today with historical prices, incomes, and rents. Incomes determine how much people can pay for housing, and price increases aren’t sustainable if they push prices too high relative to incomes. Rents reflect how much people value housing even if they won’t benefit from price appreciation (as renters don’t, but owners do); the price-to-rent ratio is like the price-earnings (P/E) ratio for stocks. Using data from multiple sources (see footnote), we create several measures of fundamental value and combine them in order to calculate how overvalued or undervalued home prices are relative to fundamentals.

Home Prices are Undervalued 7% Nationally and Regionally in 91 of the 100 Largest Metros
We estimate that national home prices are 7% undervalued in the second quarter of 2013 (2013 Q2). During last decade’s bubble, prices were as high as 39% overvalued in 2006 Q1, then during the bust, fell to 15% undervalued in 2011 Q4. Therefore, even with the recent price increases, home prices nationally remain undervalued relative to fundamentals and much lower than in the last bubble. That’s why today’s price gains are actually still a rebound, not a bubble. This chart shows how far prices are from bubble territory:

At the metro level, prices are below their fundamental value in 91 of the 100 largest metros. Prices are overvalued in the California metros of Orange County (+9%), Los Angeles (+5%), San Jose (+3%), and San Francisco (+2%), and the Texas metros of Austin (7%), San Antonio (5%), and Houston (2%), as well as in Portland (plus Honolulu, which at 0.01% is ever so slightly overvalued). The California metros are far less overvalued than at the height of the bubble – Orange County prices were 71% overvalued in 2006 Q1! Even the Texas metros, which largely avoided last decade’s housing bubble, are less overvalued today than at their peaks during the last bubble.

Prices are most undervalued today in Las Vegas and Detroit, even after their price gains in the past year. Several Florida and Ohio metros are also among the most undervalued. All of these metros were overvalued at the height of the bubble, some less so (Dayton, Akron) than others (Las Vegas, Palm Bay-Melbourne-Titusville).

Other indicators aside from home prices, like mortgage lending and construction activity, confirm that the housing market isn’t forming a new bubble. Mortgage credit remains very tight, especially for people with lower credit scores, and the new “qualified mortgage” rules under Dodd-Frank intend to prevent the recurrence of toxic mortgages that artificially inflated housing demand in the last bubble. Also, construction activity, though rebounding, is still well below normal levels, and the vacancy rate is falling, so there’s no evidence of overbuilding today like we had during the last decade.

Is the Next Bubble Coming Soon?
If prices keep rising as fast as they are today, we’d be back in bubble territory in several years. However, prices are unlikely to keep rising as fast as they are today, for three reasons:

1. Inventory should expand. Tight inventory is boosting prices today as buyers bid up prices on scarce homes; however, as prices continue to rise, more people will sell as they get back above water or decide to cash out, and more new construction will add to inventory.
2. Mortgage rates should rise. Low mortgage rates today increase buying power because borrowers can afford a more expensive house for the same monthly payment. Rates are likely to rise as a result of the strengthening economy, either through market forces or Fed actions, which – along with more inventory – should slow down price gains.
3. Investor interest should fade. Undervalued prices have attracted investors, who have helped push up home prices as they have bought and rented out homes. But as prices rise, investor interest will fade.

Will expanding inventory, rising mortgage rates, and declining investor activity cause home prices to plunge? Slow down, yes, but probably not plunge. Just as these factors should cause home prices to slow down, job growth and increased household formation should support a continued recovery in housing demand.

Is Another Bubble Coming Ever?
Even though we’re not in bubble territory today, another one is coming – someday. The history of American real estate is full of speculation, bubbles, and busts. Trulia’s own survey of consumers shows that most people expect prices to get back to the peak of the previous bubble again in the next 10 years – including people in housing markets where prices had been overvalued most. Furthermore, our rent-versus-buy analysis, which indirectly reveals where people expect prices to rise the most long-term, shows that people expect future prices to rise more if they live in metros where booms and busts were more common in the past. This is another sign that people seem to think prices go up but not down. Will government help to prevent another bubble? Perhaps the new mortgage rules will help – but the more cynical answer is “no.” The most recent bubble was more severe than earlier housing bubbles, and if we didn’t previously learn from the past, then why should we learn from it now? In short: housing bubbles look almost inevitable. Whether you’re buying a home, selling a home, or setting housing policy, remember that the next housing bubble is probably just a matter of time. But, as Trulia’s Bubble Watch shows, that time is not now.

Notes: To get our estimate of over- or undervalued prices, we averaged together several measures of prices relative to fundamentals, including the price-to-income ratio, the price-to-rent ratio (national only), and the deviation of price growth from trend. We compared current values of these measures to the long-term average, excluding the most extreme quarters from the long-term average. We used the Trulia Price Monitor for current price trends as well as the Case-Shiller national index, the Federal Housing Finance Agency (FHFA) national expanded-data index, the FHFA all-transactions price indexes for metros, national and metro per-capita income from the U.S. Bureau of Economic Analysis, and national owner-equivalent rents from the U.S. Bureau of Labor Statistics. Our historical time series goes as far back as the early 1980s, depending on the data source. We tested our approach by seeing how well our over-/under-valuation measure would have predicted metro-level price drops in the housing crash. The correlation between metro-level price over- or-undervaluation in 2006 Q1 and the subsequent metro-level peak-to-trough price decline was -0.83.

Prices Up 8.3% Year-over-Year, Rising in 95 of 100 Largest Metros
In April, asking home prices rose 1.3% month-over-month, seasonally adjusted. Quarter-over-quarter, prices are up 4.3%, seasonally adjusted. Year-over-year, prices are up 8.3% nationally and are higher than one year ago in 95 of the 100 largest metros.

Strong Job Gains Behind Sharp Home Price Increases
To understand why home prices are rising, let’s look at where they’re rising most. The 10 metros with the biggest Y-o-Y price gains include Las Vegas and Phoenix in the Southwest, seven metros from across California, and just one outside the West – Warren-Troy-Farmington Hills, MI, next to Detroit. Most of these 10 markets had a severe housing crash after the bubble, creating bargains for investors and others to buy, and then rent out or hold. As we reported last month, investor activity has added to the rental supply resulting in single-family home rents flattening year-over-year.

But investors aren’t the whole story – not even close. Markets with big price leaps have something else in common: nine of these top 10 price gainers also have above-average job growth in the past year. National job growth was 1.5% Y-o-Y in March 2013 based on the latest available month for metro-level jobs data from the Bureau of Labor Statistics (BLS); only Warren-Troy-Farmington Hills, MI– at 0.3% job growth – fell below that national average.

Jobs and Home Prices Across the Country
Jobs and housing demand go hand in hand. Why? Two reasons. When job growth attracts newcomers to an area, those newcomers need a roof over their heads. Plus, when people find jobs – even if they don’t move to a new city – they’ll often look for their own place to rent or buy instead of staying with roommates or parents. Census data from March 2013 show that just 12% of 25-34 year-olds with jobs live with their parents, versus 20% of 25-34 year-olds without jobs who live with their parents.

The correlation between job growth and home price growth is 0.4 and is statistically significant. In fact, looking across the 100 largest metros, only Warren-Troy-Farmington Hills, MI, and neighboring Detroit have sharp price growth WITHOUT strong job growth: they sit pretty much alone in the lower-right part of the scatterplot graph pasted below. However, strong job growth doesn’t necessarily mean hyper growth in home prices.

Four Texas metros – Austin, Houston, Fort Worth, and Dallas – have some of the fastest job growth in country but with price growth near today’s national average, ranging from 7-10% Y-o-Y (see toward the top left of the scatterplot).  Why doesn’t Texas have the same price growth as California despite having similar job growth? Because Texas didn’t suffer the housing bust as California and the rest of the Sunbelt did, so there’s less investor activity and price yo-yoing in Texas than in harder-hit markets.

Rents Fall in San Francisco and Las Vegas, Despite Soaring Prices
Rents are up 2.4% year-over-year nationally, rising faster than prices in just three of the 25 largest rental markets: Houston, Chicago, and Philadelphia. Furthermore, rent growth has slowed: in 19 of the 25 largest rental markets, rent growth year-over-year was slower in April than three months earlier, in January. In some markets, rents and prices are moving in the opposite direction, or nearly so: the four metros with the slowest rent growth, or even declines – Seattle, Sacramento, Las Vegas, and San Francisco – all had price gains of more than 15% Y-o-Y.

The next Trulia Price Monitor and Trulia Rent Monitor will be released on Thursday, June 6, at 10 AM ET.

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. Our FAQs provide all the technical details.

The Way Homes Used to Be: Homes Before 1940
San Francisco Victorians, New York pre-war buildings: old homes are part of local history in much of the country. But across the Sunbelt, population growth has been more recent, so truly old homes are rare. This interactive map shows the percent of on-market homes (as of the last week in March 2013) built in each decade in the largest major metros. 

The oldest homes for sale – those built before 1900 – are concentrated in New England and upstate New York. More than 5% of homes currently listed in the Massachusetts metros of Peabody, Boston, Middlesex County, Springfield, and Worcester were built before 1900, along with the upstate New York metros of Syracuse, Albany, and Rochester. Allentown, PA, and Providence, RI, round out the 10 metros with the largest share of old homes for sale.

You’ll find a large share of homes built in the 1900s in San Francisco (6.4%) – especially just after the 1906 earthquake – while homes from the 1920s are easiest to find in New York (12.3% of on-market homes there were built in the 1920s), Los Angeles (9.7%), and several Ohio markets including Toledo, Akron, Dayton, and Cleveland. At the other extreme, there are essentially no homes from the 19^th century across much of the South and the West. In fact, fewer than 1% of on-market homes were built before 1940 in Las Vegas, Fort Lauderdale, Phoenix, and other Sunbelt metros.

What’s special about old homes? Listings for homes built before 1900 are far more likely to mention exposed brick, pocket doors (which open by sliding into a “pocket” in the nearby wall rather than swinging open), carriage houses, and grand staircases than homes built in more recent decades. Homes from the 1900s mention tin ceilings, fir floors, and chimneys, while homes from the 1910s often call out kitchen and bathroom features like built-in buffets, claw-foot tubs, and china cabinets. In the 1920s, wood features were popular: properties from that decade call out gumwood trim and herringbone floors. Also in the 1920s, European styles were in vogue: listings mention original French doors, French windows, and Spanish styles. Homes from the 1930s are more likely to mention slate roof and glass door knobs, and curves were in fashion too, with coved ceilings and arched doorways. These popular listing words reveal the evolution of American architecture and building materials – you can see the five phrases that capture the character of each decade in our interactive map based on Trulia’s analysis of for-sale listings.

Housing from the Post-War Boom
America grew rapidly from the 1940s through the 1970s, starting with the end of the Great Depression until the recession in the early 1980s.  The homeownership rate also grew rapidly from 43.6% in 1940 (it had remained around 45% since 1900) to 64.4% in 1980. During these decades, population and construction activity shifted to the Midwest, the suburbs, and finally to the Sunbelt.

Homes built in the 1940s account for the highest share of today’s for-sale listings in Detroit (19.6%), Los Angeles (10.2%), and Cleveland (9.1%). In the 1950s, Long Island had a major construction boom, and today nearly one fifth of the area’s homes for sale were built during the decade. The 1960s and 1970s were periods of rapid growth in suburban southern California and Hawaii: high shares of homes for sale today in Orange County, Ventura County, and Honolulu were built in those decades. Homes from the 1970s also account for much of the for-sale inventory in the Florida metros of Fort Lauderdale, West Palm Beach, Tampa, and North Port-Bradenton-Sarasota.

As with older homes, post-war home listings call out materials and design features, but they also mention modern conveniences. For instance, listings of 1940s homes mention central heating and air-conditioning. Ramblers and other homes built in the 1950s emphasize parking, such as side drive, double-wide driveway, and enclosed carport, while homes in the 1960s refer to design features like terrazzo floors and dual paned windows. The 1970s saw homes divided into multiple levels, described as spacious bi-level, split entry, and large split level home – a change from the single-story ranch and rambler homes of the 1950s.

Homes on the market today that were built in the 1940s and 1950s are smaller, on average, than homes built in any other decade, and homes built from the 1940s through the 1970s are less expensive than homes built more recently.

The Last 30 Years: Skylights, Island Kitchens, Water Features
More than 80% of homes listed for sale today in Austin, Raleigh, Las Vegas, Phoenix, Houston, and Dallas were built since 1980. In fact, more than one third of the homes listed today in Austin, Raleigh, Houston, and Dallas were built after 2010: these markets had a relatively mild housing downturn during the crash and demand for new construction has remained strong. In contrast, few homes in Las Vegas or Phoenix  have been built since 2010, but more than a third of their listings were built in the boom-and-bust 2000s decade.

Which features are distinctly modern? Homes built in the 1980s offer cathedral ceiling skylights, sunken living rooms, and mirrored closets. The 1990s gave us palladium/palladian windows (a large arched window flanked by smaller rectangular windows), island cooktops, and pot shelves (no, silly, that’s a kitchen feature). Next came the decade of water and audio: infinity edge pools, snail showers, and pre-wired surround sound are often mentioned in listings from the 2000s. Finally, phrases emphasizing artisanship and nature popped in the 2010s, like hand-textured walls, handscraped hardwood floors, and natural light exposure.

Recently, too, homes have gotten bigger, especially since the 1990s: homes built in the current decade are 80% bigger than the typical 1940s home. On top of all that, “new” is hard to resist, especially compared with the wear-and-tear that older homes have. As a sales agent in a new Las Vegas development said to me during the boom, “Why buy a used house when you can buy a new house?” All those extra square feet, island cooktops, and hand-textured walls come at a price. The median listing price of homes built in the 2010s is more than twice that of homes built in the 1900s, 1910s, and 1940s. That means buying a piece of history will set you back a lot less than a big, modern house will.

But in a few markets, old homes cost more than new construction. Homes currently on the market in Houston from the 1920s have a median asking price of $317,900 – more than Houston homes from any other decade. Washington D.C. homes built in the 1900s and earlier are listed for more than homes built in any other decade. In New York, San Francisco, Seattle, and Austin, too, the decade with the most expensive listings is long in the past.

Where is  buying a piece of local history most expensive, relative to buying a recently built home? Charleston, SC: the median asking price for pre-1900 homes is $805,000 – more than twice the median price of listings from any other decade. Furthermore, the median asking price for 19^th (and earlier) century Charleston homes is the highest among all metros for homes from that era. We bet they’re not calling them “used homes” in Charleston.

In March 2013, construction starts and the delinquency + foreclosure rate improved:

• Construction starts rocketed to a new post-bubble high. Starts were at a 1,036,000 seasonally adjusted annualized rate – up 7% month-over-month and 47% year-over-year – which is the highest level since June 2008. In March, 38% of new starts were in multi-unit buildings, compared with the typical level of 20%. Construction starts are now 55% of the way back to the normal level of 1.5 million from their low during the bust.

• Existing home sales went down a bit. Sales fell 0.6% in March to a seasonally adjusted annualized rate of 4.92 million homes. That’s a 10% increase over one year ago. Excluding distressed sales, conventional home sales were up 23% year-over-year in March. Also, inventory rose even on a seasonally adjusted basis for the second month in a row. Overall, existing home sales are 66% back to normal.

• The delinquency + foreclosure rate dropped yet again. The share of mortgages in delinquency or foreclosure dropped to 9.96% in March, down from 10.18% in February and 10.98% in March 2012. The combined delinquency + foreclosure rate is 48% back to normal and at its lowest level since October 2008.

Averaging these three back-to-normal percentages together, the housing market is now 56% of the way back to normal, up from 54% in February and 43% six months ago in September. One year ago, the market was only 33% back to normal – so the last year has been a significant recovery. Furthermore, this month’s improvement is even better than it looks with the shift of sales from distressed to conventional and early signs that the inventory crunch may be easing, which will bring some relief to would-be homebuyers.

Buyers in a Rush; Sellers, Not So Much
The biggest challenge for home buyers this season is the lack of inventory, which is down 20-25% year-over-year and near its lowest level since before the housing bubble. Our consumer survey shows that people think now is the time to buy, not sell: 75% of respondents agreed with the statement “it would be better to buy a home now than one year from now,” but only 32% of respondents (and just 29% of current homeowners) felt the same way about selling now rather than one year from now.

Eager buyers, patient sellers: people want to buy before prices rise further, but no one wants to sell at the bottom–especially if they’re still underwater. These attitudes point to a 2013 housing season with bidding wars and stiff competition among buyers who want to get ahead of further price increases.

On the rental side, too, inventory remains tight: Census data show rental vacancy rates also near a 12-year low. So whether they’re looking to buy or rent, house hunters in 2013 will feel like they don’t have the luxury of taking their time and holding out for the perfect home. Many will need to act fast – and some will make decisions that they could regret later. With that in mind, we asked current homeowners and renters about their housing regrets; their answers are lessons for today’s house-hunters.

What Homeowners Regret About their Homes
Just over half of people – 52% — have at least one regret about their current home or the process of choosing it. (In this analysis, we exclude the 11% of respondents who said they were not involved in the process of choosing their current home.) Renters are more likely to have regrets than homeowners – 56% of renters versus 50% of homeowners – and their regrets are somewhat different, so we look at homeowners and renters separately.

Among homeowners, the top regret is wishing they had chosen a larger home: 34% of homeowners with regrets — that’s 17% of all homeowners — mentioned this. The second most common regret – 27% of homeowners with regrets — is wishing they had done more remodeling when they bought the home. Third was wishing they had more information about the home before choosing it.

Overall, people wish they had invested more in their home, not less. Homeowners are five times more likely to wish they had remodeled more than remodeled less; four times more likely to wish they put more money down, not less; and three times more likely to wish they purchased a larger home than a smaller home.

What Renters Regret About their Homes
Renters have similar regrets – but are more likely to have them. They, too, wish they had chosen a larger home: 39% of renters with regrets did, making it the second-most common regret. And, renters, like homeowners, wish they had chosen a home with a shorter commute more so than the other neighborhood features we asked about: better schools and less crime. The top regret, though, was wishing they bought instead of rented, which 42% of renters with regrets – and 23% of renters overall – mentioned.

The biggest difference in the regrets of homeowners and renters is that 23% of all renters wished they had bought instead of rented, while just 3% of homeowners wished they had rented instead of bought. When it comes to buying versus renting, regret pretty much goes in only one direction.

Youthful Regrets
Among Millennials – those age 18 to 34 – 70% have at least one regret about their current home or most recent search process. Among Millennial homeowners, 75% have regrets, compared with just 36% of homeowners age 55 and older. Young renters, too, are more likely to have regrets than older renters, but the age gap in regrets is especially stark among homeowners.

The top regrets for young homeowners are the same as for adults overall: they wish they had chosen a larger home, done more remodeling, and had more information about the home. But these regrets are much more common among the young (even when comparing people in different age groups who moved into their current home at the same time). Whereas just 17% of all homeowners wished they had chosen a larger home, 31% of homeowners age 18-34 did. The lack of financial security was also particularly strong among the young: 8% of all homeowners wished they had been more financially secure before deciding on their current home, but twice as many 18-34 year-olds – 16% — did. Young people were also more likely to have regrets about their neighborhood than older adults did. Across all 18-34 year-olds, including homeowners and renters, 15% wished they had chosen a neighborhood with a shorter commute, compared with 8% of adults overall.

As the Market Recovers, Some Regrets Fade
The housing bubble, which peaked from 2003-2006, and the years of falling prices that immediately followed, created many regrets that are now becoming less common as the housing market recovers. The top real estate regrets – wishing you had bought a larger home and wishing you had remodeled more when you bought – were most common among homeowners who moved into their current home during the boom years of 2003-2006, when housing was at its most expensive. Among homeowners who moved into their current home in those years, 25% wish they had bought a larger house, compared with just 15% of homeowners who moved into their current home from 2010-2013. Homeowners who moved into their current home between 2010 and 2013 also have fewer financial regrets than people who moved into their current home during (2003-2006) or just after (2007-2009) the bubble: these most recent buyers were also less likely to wish they shopped around for a better mortgage, wish they borrowed less against their home, or wish that they had understood the costs of homeownership better.

Why are recent buyers less likely to have regrets? In 2010-2013, prices have been relatively affordable, mortgage rates have been very low, banks have been conservative in their lending, and the pain of the foreclosure crisis taught tough lessons about the risks and costs of homeownership– all of which have helped recent buyers make housing decisions with fewer regrets. Recent buyers have also seen prices appreciate since they bought, which should help them avoid one of the most painful housing regrets of the crisis: 46% of people who walked away from their home (i.e., defaulted on their mortgage) regret that they did.

Slow Down to Avoid Regrets
Market conditions in 2013 could pressure this year’s buyers and renters into making real estate decisions that they’ll regret. Buyers and renters need to brace themselves for a season of slim pickings: but rather than jumping on the first home that seems good enough, they should focus on not making decisions that lead to regrets.

Of course, regret is hard to avoid. On one hand, people regret not investing more in their homes: many homeowners and renters wished they had chosen larger homes; homeowners wished they remodeled more and put more money down. On the other hand, many homeowners and renters regret not having been more financially secure before choosing their home. Furthermore, homeowners were much several times likelier to wish they had borrowed less against their home rather than more.

So how can people avoid these big regrets by investing more in their house (e.g., bigger home, more remodeling, buying instead of renting) while being more financially conservative? By waiting: it’s a lot easier to invest more in a home without overstretching financially if you’ve had more years to save and gain financial wisdom. For many, savings and wisdom come only with age – no wonder older adults have far fewer regrets. Even though our survey revealed that most people believe that it’s better to buy now than one year from now, waiting until you’re financially secure enough to invest more in your house could turn out to be the decision you won’t regret.

SURVEY METHODOLOGY
This survey was conducted online within the United States by Harris Interactive on behalf of Trulia from March 22-26, 2013 among 2,130 adults ages 18 and older, among which 1,370 are homeowners and 706 are renters. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables, please contact pr@trulia.com.

A quick glance suggests that construction jobs aren’t keeping up with construction activity. Even though residential construction employment growth is outpacing overall employment growth, it’s puny relative to the rebound in construction activity, measured in housing units or dollars:

A key reason for this seemingly slow rebound in construction jobs is that construction activity (in units or dollar value) fell much more than employment did after the housing bubble burst. Economists point to “labor hoarding”: firms often hold onto more workers than they need in temporary downturns if the cost of firing, re-hiring, and re-training is high relative to keeping them on. That means jobs declined less than construction activity during the bust and are therefore now rebounding less.

But look beyond just the most recent years, and it becomes clear that construction employment is actually high relative to the amount of construction activity. Let’s look at the number of jobs per unit under construction. The higher that number is, the more workers there are relative to the level of activity, so a higher number would look like a labor surplus, while a lower number would signify more of a labor shortage. The February 2013 level of 3.7 was lower than in 2010, 2011, and 2012, when there were as many as 4.9 jobs per unit under construction, but higher than the years during and before the bubble. In 2001, before the bubble went into high gear, there were 2.6 jobs per housing unit.

That means the number of construction jobs relative to construction activity today (3.7) is high relative to the pre-bubble level (2.6) – 40% higher, in fact. Furthermore, the jobs-relative-to-activity number is still 26% higher than the pre-bubble level when we use dollar value (including remodeling) instead of units as the level of activity.

As always, housing is local, and some markets buck the national trend. Between 2006 and 2012, permitting activity fell less (or even increased, believe it or not) than construction employment did in several markets. These metro areas where the supply of construction labor is tighter now than during the bubble include Washington, D.C., Denver, Seattle, San Francisco, San Jose, Orange County, CA, and San Diego. But these markets are the exceptions. In most of the country, employment relative to construction activity is high now compared with the bubble and pre-bubble years.

Therefore, as the housing market continues to recover, jobs and activity will both keep increasing, but the number of jobs per unit under construction should go down, not up, as it moves back toward its pre-bubble level. For the number of jobs relative to activity to get back to normal levels, jobs will continue to grow more slowly than construction activity. For builders who are reporting labor shortages today, that headache is likely to get worse, not better, as the recovery continues.

Prices Up 7.2% Year-over-Year, Rising in 91 of 100 Largest Metros
In March, asking home prices rose 1.1% month-over-month, seasonally adjusted. That’s an annualized growth rate of 14%. Quarter-over-quarter, prices are up 3.5%, seasonally adjusted. Year-over-year, prices are up 7.2% nationally and are higher than one year ago in 91 of the 100 largest metros.

Single-Family Rents Stagnate as Investors Create More Supply
Rents, however, rose just 2.4% year-over-year – the smallest increase since the Trulia Rent Monitor started tracking rents one year ago. Let’s look at the trends separately for single-family homes and homes in multi-unit buildings. Rents are rising only on apartments, now at 2.9% year-over-year; single-family home rents have essentially flattened, rising just 0.1%.

Why have rents stopped rising on single-family homes? More supply. Investors have purchased single-family homes – including many foreclosures – and are renting them out. In fact, the number of single-family rentals nationally has increased by almost one third since the housing market last peaked: that’s nearly 4 million more single-family homes rented in 2012 than in 2005.

In some markets where investors are especially active in buying and renting out single-family homes, rents are actually falling year-over-year, including in Los Angeles, Orange County, and Las Vegas. In two other key investor markets – Atlanta and Phoenix – single-family home rents rose less than 1% year-over-year. Even where single-family home rents are rising most, like Tampa, Dallas, and several other Florida and Texas metros, single-family prices are rising faster. In all of the largest single-family-home rental markets, prices are rising faster than rents – and in many, it’s by a wide margin.

Las Vegas Overtakes Phoenix in Price Gains
Move over, Phoenix: Las Vegas home prices (all homes, including both single-family and condo) are now the fastest-rising in the country. Although prices bottomed more recently in Las Vegas (Feb 2012 – same as when prices bottomed nationally) than in Phoenix (April 2011), prices are now up 26.4% year-over-year in Sin City. Three northern California metros – Oakland, Sacramento, and San Jose – round out the top five. Nine of the top 10 metros for asking-price gains are in the West.

The next Trulia Price Monitor and Trulia Rent Monitor will be released on Tuesday, May 7, at 10 AM ET.

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. Our FAQs provide all the technical details.

If you want to live close enough to the ballpark to hear the crowd and see the lights from home–and of course, walk to the game–it’ll cost you. We examined asking home prices from the past year on Trulia in the neighborhoods within a mile or two of each stadium (excluding Toronto). It costs most to live near AT&T Park, home of the San Francisco Giants: $653 per square foot. Living near Atlanta’s Turner Field or Kansas City’s Kauffman Stadium costs only one tenth as much:

Note: median price per square foot in the neighborhood approximately one or two miles around the stadium. Final column is the ratio of stadium-area median price to metro median price. Values above 1 mean the stadium area is more expensive than the metro area overall.

It’s no surprise to see that California stadiums are in more expensive neighborhoods, right? San Francisco, for instance, is expensive almost everywhere: even the cheapest San Francisco neighborhood would give sticker shock to Kansas City or Atlanta residents.

So to even out the playing field, we also looked at which stadium neighborhoods are expensive relative to the surrounding metro area. Of the 29 major-league stadiums excluding Toronto, 20 are located in neighborhoods that are more expensive than the average for that metro. That means the stadium area price relative to metro price is greater than 1. The Fenway Park neighborhood is 2.6 times as expensive as the Boston metro area overall – making it more relatively expensive than San Francisco’s AT&T Park, which is only 1.3 times as expensive as the San Francisco metro overall. Cincinnati, in fact, has the most expensive stadium neighborhood relative to the metro area, at 2.8x.

The most expensive stadium neighborhoods relative to their metros are in or near downtowns. In contrast, stadiums in neighborhoods that are inexpensive relative to the metro area tend to be at least a few miles outside of downtown. Yankee Stadium, for instance, is in the Bronx, six miles from Grand Central Station, and in an area that’s much cheaper than the typical New York metro neighborhood. At $198 per square foot, homes near Yankee Stadium may be expensive relative to most of the country, but they’re inexpensive compared with the rest of New York.

It Costs More to Live Near a Winner
The most diehard fans might want to live next to the ballpark no matter how the team is doing, but if you’d pay more to live near a winner, that’s good – because you might have to. Based on the odds that bookies are offering on the 2013 World Series, the teams with a better shot at the championship play in more expensive neighborhoods – though the correlation isn’t strong. (We looked at oddschecker.com, a British website that aggregates odds from multiple bookies, and took the most favorable odds for each team minus the extreme values.) Using this method, the team with the best shot at winning the 2013 World Series is the Washington Nationals, followed by the California Anaheim Los Angeles Angels. For instance, the odds for the Angels winning are 9-to-1, which implies a 10% likelihood that the Angels will be this year’s World Series champs. Here’s the scatterplot of (1) each team’s chances of winning the World Series and (2) home prices in the neighborhood around the team’s stadium, with the upward-sloping line showing the positive (but weak) correlation:

It costs a lot to live near the Nationals, Dodgers, and Angels, but maybe it’s worth it since they’re expected to do well this year. However, you’ll pay the same premium to live near the Red Sox, Padres, or Mariners–but with a much lower chance of seeing and hearing a World Series victory from your roof deck. That’s an expensive way to get a lot of disappointment, if the bookies are right. However, at $110 per square foot, living near the Detroit Tigers’ Comerica Park is a much cheaper way to be walking distance from a potential 2013 World Series winner.

Cheer for Your Team, Not For Your Home Value
Is buying near a stadium a good real estate investment? Many academic studies, summarized here, have looked closely at the impact of new stadiums on wages, property values, and other economic indicators, and the results are mixed. New stadiums often have a disappointing impact on local economies, though they often end up raising nearby home values and rents. Since new stadiums don’t open that frequently, we looked instead at whether home prices rise in seasons when a baseball team wins more games?

Sorry, stadium-neighbors: the answer is no. Home prices near stadiums don’t rise more in the years that a team wins more games. (Technical note: we use panel regression with a team fixed-effect and controlled for metro-level price changes.) Living near a winning team may bring you happiness and bragging rights, but it won’t raise your home values. There are lots of reasons to cheer for the home team if you live near the ballpark–who wants a bunch of grumpy fans walking around your neighborhood after the game?– but the effect on your home’s value isn’t one of them.

In February 2013, all three measures held steady or improved:

• Construction starts notched up. Starts were at a 917,000 annualized rate, up 0.8% month-over-month and up 28% year-over-year. Aside from a December spike in construction, February starts were at the second-highest level since July 2008. And 31% of February construction starts were in multi-unit buildings–compared with the typical level of 20%. Construction starts are now 43% of the way back to normal.

• Existing home sales also increased. Sales rose slightly to 4.98 million in February from 4.94 million in January. Year-over-year, sales were up 10%. Excluding distressed sales, conventional home sales were up 25% year-over-year in February. Importantly, inventory–which has been very tight and could hold back sales–rose almost 10% in February, which is a bigger jump than the typical seasonal increase. Overall, existing home sales are 70% back to normal.

• The delinquency + foreclosure rate dropped. The share of mortgages in delinquency or foreclosure dropped from 10.44% in January to 10.18% in February, and is now at its lowest level since October 2008. The combined delinquency + foreclosure rate is 46% back to normal.

Averaging these three back-to-normal percentages together, the housing market is now 53% of the way back to normal, up from 51% in January. One year ago, the market was 33% back to normal. At this rate of recovery, “normal” won’t come until late 2015. Despite sustained improvement on every indicator, the housing market still has a way to go. The trend is up, but the road is long.

To determine whether renting or buying a home costs less, we do the following:

1. Calculate the average rent and for-sale prices for an identical set of properties. For this report we looked at all the homes listed for sale and for rent on Trulia from December 2012 to February 2013. We estimate prices and rents for the similar homes in similar neighborhoods in order get a direct apples-to-apples comparison. We are NOT just comparing the average rent and average price of homes on the market, which would be misleading because rental and for-sale properties are very different: most importantly, for-sale homes are 47% bigger, on average, than rentals.
2. Calculate initial total monthly costs of owning and renting, including maintenance, insurance, and taxes.
3. Calculate future total monthly costs of owning and renting, taking into account price and rent appreciation as well as inflation.
4. Factor in one-time costs and proceeds, like closing costs, downpayments, sales proceeds, and security deposits.
5. Calculate net present value to account for opportunity cost of money.

To compare the costs of owning and renting, we assume people will get a 3.5% mortgage rate, reside in the 25% tax bracket and itemize their federal tax deductions, and will stay in their home for seven years. We also assume buyers get a 30-year fixed-rate mortgage and put 20% down. Under all of these assumptions, buying is 44% cheaper than renting nationwide, taking into account all of the costs and proceeds from buying or renting over the entire seven-year period. We also look at alternative scenarios by changing the mortgage rate, the income tax bracket for tax deductions, and the number of years one stays in the home.  Our interactive map shows how the math changes under alternative assumptions. And if you’re interested, check out our detailed methodology which explains our entire approach, step by step.

Savings from Buying Versus Renting Smallest in California and New York, Biggest in the Midwest
Buying a home is cheaper than renting in all of the 100 largest metro areas, but buying ranges from 19% cheaper than renting in San Francisco to 70% cheaper than renting in Detroit. The financial benefit of buying instead of renting is narrowest in San Francisco, Honolulu, San Jose, and New York.

Over the past year, the gap between renting and buying has narrowed most in the Bay Area. One year ago, buying was 35% cheaper than renting in San Francisco and 38% cheaper than renting in San Jose; now, the difference is 19% and 24%, respectively. These metros have seen strong price increases year-over-year. In contrast, the gap didn’t narrow at all in New York, where buying remains 26% cheaper than renting, both now and a year ago. On Long Island, the difference actually widened from 34% one year ago to 36% today. New York, Long Island, and other Northeastern metros have seen more modest price rebounds over the past year, despite rising rents:

Note: Negative numbers indicate that buying costs less than renting. For example, buying a home in San Francisco is 19% cheaper than renting in 2013. Trulia’s rent vs. buy calculation assumes a 3.5% 30-year fixed-rate mortgage, 20% down, itemizing tax deductions at the 25% bracket, and 7 years in the home.

At the other extreme, homeownership is most affordable in Detroit, where buying is 70% cheaper than renting. This means it costs less than one-third as much to buy a unit than to rent a similar unit in a similar neighborhood. In fact, buying is less than half the cost of renting (more than a 50% difference) in 46 of the 100 largest metros.

Note: Negative numbers indicate that buying costs less than renting. For example, buying a home in Detroit is 70% cheaper than renting in 2013. Trulia’s rent vs. buy calculation assumes a 3.5% 30-year fixed-rate mortgage, 20% down, itemizing tax deductions at the 25% bracket, and 7 years in the home.

In the largest metros, the rent-versus-buy decision depends largely on location. Within the New York metro area, buying is just 6% cheaper than renting in Manhattan, but 53% cheaper in suburban Westchester County. This, however, is an extreme example. The differences within most metros aren’t quite so stark. In the Los Angeles metro area, buying is 22% cheaper than renting in the Pasadena / San Gabriel Valley area (telephone area code 626), while buying is 36% cheaper than renting in the San Fernando Valley (area code 818). The difference between the 626 and the 818 is a lot smaller than the difference between Manhattan and Westchester.

Here’s How Renting Could Be the Better Deal
Three factors have a real impact on the rent-versus-buy math: mortgage rates, tax deductions, and how long you stay in your home. Change any of these factors, and buying a home won’t look quite as inexpensive relative to renting. Using our baseline assumptions of getting a 3.5% mortgage rate, deducting at the 25% bracket, and staying in your home for 7 years, buying is 44% cheaper than renting nationally. Here’s the “but”:

• Lower mortgage rates lower the cost of owning. While buying is 44% cheaper than renting with a 3.5% mortgage, buying would be 39% cheaper than renting at 4.5% and only 33% cheaper at 5.5%. Higher rates mean a higher cost of owning, but prices today are low enough relative to rents that buying would beat renting even if mortgage rates rose two full points.
• Itemizing deductions lowers the cost of owning. Mortgage interest and property tax payments are typically deductible. If you itemize deductions (at the 25% tax bracket) regardless of whether you own or rent, buying is 44% cheaper. Without itemizing (read: you’re just taking the standard deduction), buying is still 35% cheaper than renting. This means that even if tax deductions were eliminated entirely – don’t worry, no one in Washington is seriously proposing anything that drastic – the rent-versus-buy decision probably wouldn’t change that much. Though it would probably encourage people to buy smaller or cheaper homes.
• Staying put longer lowers the relative cost of owning. The combined cost of buying and then selling a home can easily total more than 10% of the home’s value. Staying put longer means, in effect, spreading those costs over more years. Buying is 44% cheaper than renting if you stay put for 7 years, 37% for 5 years, and 20% for 3 years.

In other words, depending on your circumstances, buying could be a bad deal. Suppose you stay put for only 3 years AND don’t itemize your deductions (lots of homeowners with mortgages don’t itemize, by the way). Even with a 3.5% mortgage, buying would be only 9% cheaper than renting nationally. And in many markets, buying would be MORE expensive than renting if you stay put for 3 short years and don’t itemize: buying would be 2% more expensive than renting in Boston, 9% more in Los Angeles, 26% more in New York, and 45% more in San Francisco. Clearly, buying is not for everyone — especially if you live in a more expensive housing market.

Remember, also, that owning carries a lot more risk than renting. Some of the factors affecting the cost of ownership involve a lot of uncertainty.

• One uncertainty: you might plan to stay in your new home for a long time, but unexpected family or employment circumstances could make it necessary to move sooner and incur those closing costs after just a few years.
• A second uncertainty: unforeseen maintenance or renovation problems could push the annual care and upkeep costs much higher than 1% of the home’s value, which is what we included in our model.
• And, of course – as if this needs to be said after the last few years – there’s no guarantee that home prices will rise. We’ve used a conservative estimate of a little over 2% home price appreciation per year, varying a bit by metro – which is just slightly above the rate of inflation we’ve included. But actual appreciation could be much higher or lower than that. Price declines are always a risk, and not just in Las Vegas and Detroit. Even metros that didn’t see huge price declines during the most recent housing crisis have sustained price declines in the past. For instance, prices fell by more than 20% in much of Texas and Oklahoma in the late 1980’s, and by 10-20% across much of New England and upstate New York in the early 1990’s, according to FHFA.

Buying Probably Won’t be This Cheap Relative to Renting Next Year
How will the rent-versus-buy math change over the next year? Two factors matter most: (1) whether prices or rents are rising faster, and (2) what’s happening to mortgage rates. Looking forward, the gap should narrow more sharply because both factors should work together to raise the cost of buying relative to renting.

First, home prices are likely to keep rising faster than rents. The continued economic recovery will make people more able and interested to buy a home, boosting the demand for housing while inventory remains tight, fueling price increases. At the same time, the increase in multi-unit-building construction should add more supply, especially to the rental market, which will keep rent gains modest.

Second, mortgage rates are likely to rise in the next year as the economy improves, even though they fell in the past year. The consensus among macroeconomic forecasters is for 10-year Treasury bonds –which 30-year fixed-rate mortgages track pretty closely – to rise 6 or 7 tenths of a point over the next year. This translates roughly into a 7-9% higher monthly payment for a given mortgage.

Together, prices outpacing rents and higher mortgage rates will make buying less affordable next year relative to renting than it is now. By this time next year, the cost of buying could even exceed the cost of renting in some of the priciest metros. The rent-versus-buy decision depends on so many factors, both economic and personal, and next year the math could look very different.