Realtor Associations Sues its own MLS, Accusing Unfair Business Practices by Andrea Brambila

Realtor associations sues its own MLS, accusing unfair business practices

Trade group objected to data share and potential merger with California Regional MLS
 Key Takeaways

The Greater San Diego Association of Realtors filed a federal lawsuit Thursday against its own MLS, Sandicor Inc., and its fellow Sandicor shareholders.

GSDAR owns Sandicor, which has 19,500 members, along with the North San Diego County Association of Realtors and the Pacific Southwest Association of Realtors.

The allegations

GSDAR, which has more than 12,000 members, makes the following allegations:

  • Sandicor and the other shareholders have denied GSDAR access to its own MLS data
  • The other shareholders have used Sandicor to compete unfairly with GSDAR for members
  • The other shareholders have used Sandicor funds to “push” a potential merger with California Regional MLS — the nation’s largest MLS at nearly 80,000 members

“Although Plaintiff owns a supermajority of Sandicor’s outstanding shares and contributes most of Sandicor’s funding, Sandicor’s board is controlled by PSAR and NSDCAR,” attorneys for GSDAR wrote in the complaint.

“They have used this position of power to wield Sandicor as an anticompetitive weapon, milked its resources for their own enrichment, and frustrated its purpose, all while actively preventing Plaintiff from participating in corporate decisions.”

The complaint’s claims against Sandicor, the North San Diego County association and the Pacific Southwest association include breach of fiduciary duty, waste of corporate assets, “unfair, illegal, and/or fraudulent business practices,” and breach of written contract, among other claims.

NSDCAR and PSAR are also accused of violating state and federal antitrust laws, breach of fiduciary duty by controlling shareholders and intentional interference with contractual relations.


Board voting skewed

Sandicor CEO Ray Ewing declined to comment for this story, noting that he and Sandicor’s legal counsel had not seen a copy of the complaint until Inman’s inquiry.

In an emailed statement, PSAR CEO Richard D’Ascoli said, “We are deeply disappointed that SDAR has taken this step. PSAR is a member driven organization that remains focused on serving Realtors together with the National Association of Realtors and the California Association of Realtors.

“We will be reviewing the matter with legal counsel who has advised us not to comment further at this time until we can review the allegations made.”

The North San Diego County Association of Realtors also said it was “very disappointed” by GSDAR’s choice to file a lawsuit.

“We firmly believe the claims made in the lawsuit are without merit and therefore will be denied. The North San Diego County Association of Realtors has always acted in the best interests of its members and will continue to do so,” the association said in an emailed statement.

NSDCAR did not respond to a request for comment by publication time.

According to the complaint, although each of the three associations have two members on the Sandicor board and GSDAR is the majority shareholder in Sandicor, the board’s voting formula only gives GSDAR four-elevenths of the voting power.

This means, GSDAR’s attorneys allege, that PSAR and NSDAR have been able to “dominate and control” Sandicor’s board and proceed with certain projects over GSDAR’s objections, including:

  • “exploring, approving, and creating a task force to investigate a merger with CRMLS, which, if the merger went through, will diminish the value of Sandicor’s database;
  • “authorizing Sandicor to develop a Web portal that competes with one its shareholders (Plaintiff) at great expense and without the necessary shareholder approval; and,
  • “preventing Plaintiff from obtaining a data feed to use in conjunction with its Web portal while allowing other consumer-facing websites to have feeds from Sandicor.”

According to the complaint, GSDAR’s share stake in Sandicor is about 68 percent, followed by NSDCAR at about 22 percent and PSAR at about 10 percent.

Data-share agreement could ‘destroy and devalue’ MLS database

GSDAR also objected to a data-share agreement between Sandicor and CRMLS, also announced Thursday. In the complaint, GSDAR’s attorneys claimed agreement “threatens to destroy and devalue Sandicor’s most valuable asset: its database.”

CRMLS CEO Art Carter told Inman that was not a fair statement.

“The value of the database in CRMLS’s opinion is derived by how many eyeballs can be placed upon that data and from our standpoint a datashare increases the value of the database, not decreases,” he said.

He confirmed that CRMLS and Sandicor have been in merger talks since November 2012, with the most recent meeting taking place this week.

“From CRMLS’s standpoint the enthusiasm in the room seemed to indicate to us that there was a lot of support from their brokerage community in having a merger occur,” Carter said.

CRMLS was not aware of GSDAR’s displeasure at the idea of a merger until about six to eight months ago, he said. “Whether or not they voiced it internally is unknown to us,” he added.

According to the Greater San Diego association, if the merger were to go through, “it would destroy the value of Sandicor and value proposition offered by the Associations. The merger would also dramatically impact each Association’s operational revenue.”

In response to the allegation that a merger would destroy Sandicor’s value, Carter said, “It’s CRMLS’s position that our database is made up by information that is directly attributable and owned by the brokerage community and as such the brokerage community should have a say in the dissolution or use of that database.

“We were a little bit surprised that Greater San Diego has taken the position in the lawsuit that the business purposes of the association might be of a higher concern than the brokers’ needs, wants and desires.

“We’re also a little bit surprised by the statements in the lawsuit that signify San Diego is a unique and isolated marketplace. The 2,300 shared members between Sandicor and CRMLS probably would differ with that statement.”

CRMLS is not a party to this lawsuit.

The complaint also accuses Sandicor CEO Ray Ewing of using his position “to market the ‘benefits’ of a merger, while defaming Plaintiff to its members and other third parties, and actively encouraging Plaintiff’s members to leave Plaintiff in favor of the Association Defendants.”

GSDAR’s attorneys noted that the association has opposed renewal of Ewing’s contract, “but has been unable to be heard by the current board.”

Competition between associations

Instead of trying to compete directly with the Greater San Diego association, NSDCAR and PSAR have been using Sandicor to provide benefits and services to their own associations paid for mainly with funding from the Greater San Diego association, the complaint alleges.

Specifically, GSDAR claims Sandicor has denied the association a current and historical MLS data feed — which it is entitled to by shareholder agreement — for its hyperlocal website, Just Knock, launched in 2015.

“The fact that Plaintiff is utilizing the MLS data to create innovative programs and services for its members has been seen as a direct competitive threat by PSAR and NSDCAR,” GSDAR’s attorneys said.

“In response, and to frustrate and prevent competition, PSAR and NSDCAR conspired to cut off GSDAR’s access to the MLS data in its entirety.”

After Sandicor denied GSDAR a direct feed, the association contracted with third-party syndicator Point2 to receive Sandicor’s syndicated MLS feed. The other associations then told Point2 to eliminate their members’ data from the Just Knock feed, reducing the data feed by 30 percent, according to the complaint.

The other associations also took steps to ensure their members would not have the option to opt-in to Just Knock syndication, the complaint added.

The Greater San Diego association also asserts that the Pacific Southwest association and the North San Diego county association denied GSDAR an MLS data feed for its Showing Suite offering “unless GSDAR agreed to make Showing Suite also available for use by the other competing associations, PSAR and NSDCAR, so GSDAR could not use it to compete for members against them.”

“GSDAR’s products and services allow for more informed purchasing decisions, reduce transaction costs and other inefficiencies among buyers, sellers, and brokers, and above all, connect prospective clients with its member-brokers,” GSDAR’s attorneys said.

“These products and services are a competitive threat to PSAR and NSDCAR because GSDAR’s products and services are a primary reason that brokers choose to join GSDAR over PSAR and NSDCAR.”

NSDCAR’s and PSAR’s “collusive actions have stifled GSDAR’s efforts to provide the innovations it has invested time and money developing, including Just Knock and Showing Suite,” they added.

“GSDAR has lost members and has not obtained new members it would have obtained but for PSAR and NSDCAR’s conduct.”

In addition, GSDAR accused the other associations of causing Sandicor “to incur more than $75,000” to build a consumer website for Sandicor “for the sole benefit of PSAR and NSDCAR, and to the detriment of GSDAR.”

“[R]ather than devoting their own resources to producing a Web portal for the benefit of their own members, the Association Defendants impermissibly used their control of Sandicor’s Board of Directors to create a website that directly competes with Plaintiff’s Web portal, at great expense and over Plaintiff’s objection, for the sole benefit of the Association Defendants,” the complaint said.

The creation of a competing consumer portal was a “type of activity was beyond the scope of Sandicor’s duties and was the exclusive responsibility of the Associations,” the complaint added.

GSDAR also accuses the other associations of using Sandicor to provide educational programs, products and services that are typically provided by individual associations for their members.

“Indeed, Plaintiff provides these types of services to its members, and has incurred substantial time and expenses in developing these services,” the complaint said.

“Rather than incurring the expense of providing these services themselves, the Association Defendants opted to, instead, use Sandicor’s funds (which, again, are provided primarily by Plaintiff) to provide their members with these value-added programs/services.”

Complaint demands

The complaint demands, among other items, a jury trial, a minimum of $1.5 million in damages, restitution, a “judicial determination” of disputes between Sandicor shareholders in regards to its corporate structure, and an order compelling Sandicor to produce for inspection its books, records and documents regarding its finances and operations, the datashare agreement and the potential merger.

Editor’s note: This story has been updated with further details from the complaint and comments from PSAR and NSDCAR. The headline has also been updated to correct that Sandicor has been accused of unfair business practices, not antitrust violations.

10 Home Renovations That Offer the Best (and Worst) Return on Investment. By Judy Dutton

10 Home Renovations That Offer the Best (and Worst) Return on Investment

Which renovations result in the biggest bang for your buck?


Remodeling may be a labor of love, but it’s also an investment that can seriously boost the value of your home.  Only by how much? Well, according to Remodeling magazine’s 2016 Cost vs. Value Report, you’ll recoup an average of 64% of what you paid for a renovation if you sell your home this year.

To arrive at these figures, Remodeling asked consultants in various markets to estimate the average cost for 30 home improvement projects, from adding a bathroom to replacing a roof. Then, they asked real estate agents nationwide to estimate the expected resale value of these renovations so that readers could compare their out-of-pocket costs to how much money they’d get back when it came time to sell their home.

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So, what projects gets you the most bang for your home renovation buck? It may not be nearly as sexy (or fun!) as adding a chef’s kitchen or glam bathroom, but attic insulation gets the top spot. That’s right: Stuff some fiberglass insulation into the walls of a 35-by-30-foot attic, and you’ll pay an average of $1,268. But when you sell, you will rake in $116.90 for every $100. For you math-challenged out there, that’s a recoup of 116.9% of your costs. It’s the only home reno on this year’s report that redeems more money than you spend!

The next best-paying renovation on the list: manufactured stone veneer, offering a respectable 92.9% return.

Meanwhile—sorry, luxury tub fans—the home improvement project that reaps the worst ROI is the addition of a bathroom, at 56.2% (although the “added value” of an extra bathroom for anyone who’s ever had to wait their turn for one is, of course, priceless).

Take-home lesson? If you’re looking for a general rule of thumb, it’s that less is more: Lower-cost projects  generally reap bigger returns, with four of the five projects that cost less than $5,000 ranking among the top five for money back when you sell.

Check out the best (and worst) returns for home renovations in the two charts below, including how much you’ll pay and get back if you sell your home this year.


1 Billion Uber Rides

1 Billion Uber Rides-Who Will Be the First Real Estate Disrupter to Close 100,000 Home Sales?

As the analog generation dies off, the DIY digital tribe will turn to the news fee for service options. 
After testing its ridesharing service in New York City with only three cars, Uber officially launched in San Francisco on July 5, 2010. On the last day of 2015, it celebrated its one billionth trip.


But consider: One billion represents a small fraction of all personal trips on buses, trains, cabs, private autos, shared rides, bikes, pedicabs, skateboards and unicycles.

Like transportation, the fragmented residential real estate industry offers every imaginable business model, agent type and service level. And in the next 12 months, more real estate disrupters — smarter, bolder and better funded — will stake a claim on real estate, like Uber has done with transportation.

Call them oddballs, outsiders, discounters or any other label you can cook up, but reacting with fear may not be the industry’s smartest impulse.

A better strategy might be to learn from those who seemingly are a threat and quickly change how business is done. I’ve noticed how New York City cabs in the last few months have become cleaner; the drivers are friendlier and taxi companies are offering on-demand apps. At first, they overreacted and spent years trying to stop Uber, which got them nowhere.

Now, they are getting their game on. I am no longer a Uber-only righteous passenger; jumping in a cab lately is a more enjoyable experience. Competition makes you keener and stronger, and the marketplace becomes more dynamic and interesting.

So where is this new competition coming from in real estate? And what may have increased the odds of some digital upstarts succeeding?

 Where is this new competition coming from in real estate?

Bountiful funding has played a role with a handful of hybrid brokers, like Redfin and Compass, which are slowly getting market share with more than $200 million in investment between the two of them. Though not too different from mainstream brokers, you can expect them to experiment and offer a plethora of new products like on-demand, agent-less showings and mobile apps that facilitate faster and friendlier closings. These hybrids use agents, even though Redfin employs them as full-time workers and offers consumer rebates.

Another variation of this approach is SRE Matrix in Hawaii, which is expanding in several markets this coming year after getting a toehold on the Islands. With a $100 million investment, the one-year old broker employs agents and rebates two-thirds of the buyer’s broker’s commission. The brokerage plans to generate most of its revenue by charging fees to mortgage, home inspection and title companies for exposure on its technology platform.

This is just the beginning. Something more game changing is afoot.

The DIY newbies

A new generation of self-serve, fee-for-service startups are entering the business. These newbies aren’t unsuccessful agents who discount because they can’t deliver on the full service model. They are often smart young entrepreneurs, who are getting the attention of legitimate investors who feel like real estate is poised for a shake up.

Take a look at HomeBay’s consumer promise.

“Everything You Need to Sell Your Home. Our technology replaces the realtor, guiding you intelligently through your home sale.” The offer includes putting your listing on the MLS after the seller fills out a simple form. Then, they promise to “market” the home, which means publishing it on the MLS — automatically feeding to Zillow and

Homelister does the same but with the added wrinkle that the service is provided through a mobile app. The company is expected to launch sometime in Q1.

You can imagine an entire category in the Apple App Store, dubbed Home Seller Apps.

This type of service has been around for sometime. Consider and What is different now is the changing habits of home buyers, capital for these new models, easy-to-use mobile applications and other technologies that simplify and mimic the traditional steps of searching for and closing a house sale.

And noise around this burgeoning cast of characters will go up a few decibels this year, as some of these rebels spend their investor money lathering up consumers about commissions and casting doubt about the role of the Realtor. One such company, SoloPro, has teed up an ad that the fledgling start-up plans to run later this quarter.

Here is part of the pitch: “Why is it … when you buy or sell a house … your hard-earned money goes to powerful real estate middlemen taking huge commissions?”

For some in the industry, these ads will be as irritating as a car alarm going off at 3 a.m. right outside your bedroom window.

Weak licensing laws create opportunity

How does this new gang of real estate outsiders penetrate the market? For one, the barrier to entry — licensing — is so low, which the established industry put in place and has never changed, despite its lobbying power. With standards equivalent to a pre-school education when compared to other financial services professionals, this friction-free path to becoming an agent or broker is core to the typical broker business model to work. It depends on lots of agents selling only a few homes but giving up a generous split with the broker.

This model is built on independent contractors, so brokers don’t face payroll and agents don’t get paid until they close a transaction. Again, keeping the barriers low and letting rogue agents roam the streets of real estate.

Imagine the pole in a limbo dance being placed six feet high, so anyone can dance under it.

Imagine the pole in a limbo dance being placed six feet high, so anyone can dance under it.

This lowest-common-denominator agent has led to negative consumer opinions, harming the reputation of the entire industry.

A qualified and ethical agent is like a good boy in a small town with three older brothers who are juvenile delinquents.

The weak-agent licensing laws plays to the hand of the disrupters.

Once licensed, these startups can instantly put listings on the MLS, even if their limited services are confined to an Uber-like app. Why? Because the DOJ (Department of Justice) cracked down on the industry almost a decade ago when it was accused of keeping these alternative models out of the MLS. The settlement between the DOJ and NAR (National Association of Realtors) prevents any shenanigans by those running the MLSs.

In effect, the industry paved the way for these new companies, as they deploy innovative new technology and take advantage of the Internet, becoming the de-facto buyer’s agent. Now that buyers can see all the listings, and soon see homes instantly, many of them — not all — will go directly to the source, the homeseller, through these new applications that are slimmed-down middlemen.

The industry took an erector set and built this complicated Rube Goldberg machine that, for nearly a century, was invincible. Now it is being turned around and used against the very people who created it.

The next generation of buyers are digital

Feeding the trend is the growing self-serve generation, who grew up with a multitude of applications and devices that enable them to do things by themselves such as dispatching a car, paying with digital money, ordering food online, signing digital contracts, playing digital music, engaging in digital communication and using online insurance, banking and travel services.

Much of this is done with a desire to have no interaction with other human beings. Consider texting’s popularity vs. making a phone call.

As the analog generation dies off, the digital tribe takes over.

As the analog generation dies off, the digital tribe takes over.

Where does Zillow fit in?

In an odd turn of events, this is where Zillow and Move may throw the industry a life preserver by touting the value of using a good Realtor to its enormous consumer audience. Their business models depend on agent success.

I can’t really imagine an alliance between NAR and Zillow jointly running ads promoting agents. But who knows? Such a partnership might thaw their ice-cold relationship.

Last year, when Spencer Rascoff interviewed me at a gathering of Zillow employees in Seattle, he asked what I thought of “paper brokers.” The tone of the question implied his disapproval of these offbeat business models.

In this new environment of more radical disrupters, all sorts of new alliances, partnerships and friendships will be formed as companies grapple with an inevitable threat.

What’s next?

Now, let’s go back to Uber and the cab companies. Faced with these challenges, what should the real estate industry road map look like?

  • Get out of fear; that will get you nowhere. Remember, the industry is fragmented and will remain so for years to come. There is room for everyone. The cab companies would love to roll back the clock on their actions with Uber — focusing on competing, not combatting.
  • For traditional companies and agents, humans are the crucial analog assets who make transactions happen. Figure out how to leverage this asset into a digital company that strives to make everything easier and more transparent for the consumer and for the agent.
  • Demand agent reviews and third-party satisfaction surveys, so the best agents overcome the consumer trust problem — like Uber drivers building their online reputations. This separates the good and bad agents. Brokers should then get rid of the agents who don’t cut it, like Uber does.
  • Embrace all of the front-end and back-end technology like on-demand showings and mobile closings so others don’t win the war over who is faster and better.
  • Partner with the rebels so you can learn about their technology and even offer their services to your customers.
  • NAR and state associations should do a legislative assault on changing state licensing laws, or face choking on their foolhardy conflict of interest. Imagine if the real estate lobby took licensing laws as seriously as preserving the mortgage interest deduction.
  • Brokers and their franchises must change a core part of their business model . If I hear the word “evolution” again, I will puke. Evolution takes millions of years. Brokers must gut the fish now to get rid of the muck.


Skip the Pain: 7 Things That Will Fill You With Buyer’s Remorse by: Angela Colley

Home shopping makes you a little (OK, a lot) house-obsessed. Between stalking online listings, flipping through all the design magazines, and gorging on HGTV marathons, you know exactly what you want in painstaking detail.

Ain’t nobody gonna say you can’t have what you want. And hey, we’re totally on board. You’ve earned this! Buy whatever you like (within your means of course)!

Treat yo'self


But we’re here to share an unsolicited word of caution. All those custom details you’ve dreamed about? Make sure you really, really want them before you put in an offer—and that, in order to get them, you’re not sacrificing other things that will ultimately drive you bonkers.

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Is the big backyard really worth all the hours of mowing and landscaping? Is your desire for more space making your home feel less cohesive? Are those floor-to-ceiling windows, which made you fall in love with the home, a total PITA to clean?

We could go on and on about the flip sides that have the potential to fill you with regret. But we talked to some experts in the biz and boiled the list down to seven features. Pay close attention to these things that might set you up for the dreaded buyer’s remorse.

1. Don’t go big, just go home

You may want the space to spread out, but consider what rooms you’ll actually use once you move in.

Do you really need five bedrooms, a game room, an office, and two formal living rooms? If you buy too big a home, you might end up regretting it when it comes time to cool, heat, and clean the place.

And don’t forget room size. If the space is too big, your furniture will seem miniaturized. To avoid going too big (or too small), bring a tape measure and measurements of your own furniture to verify everything will look the way you want.

2. Don’t get boxed in

On the other hand, if you’re planning to stay put for a while, consider the home’s architecture. You may want to expand one day, and not all homes are set up for that.

“Many buyers of split-foyer-style homes—where you enter and you’re at midlevel with the stairs and must go up or down—complain that it is difficult to expand their home,” says Cathy Baumbusch, a Realtor® in the Washington, DC, metro area.

Instead, look for more flexible, one- or two-story homes where additions are easier.

3. Don’t let your stairs become an uphill battle

Finally, when you’re walking the floor plan, think of how you’ll use the space when you own it, especially if you’re looking at an older home.

“Most buyers in my area want the standard three-story—two upper floors and a basement—Colonial-style home,” Baumbusch says. “This type of home often has the laundry room in the basement, which means the family has to haul laundry up and down two flights of stairs.

“It can get old fast.”

4. Get off the island … maybe

What we often consider to be an amenity can create remorse. Take, for example, the kitchen island. It looks cool. It adds more prep space. We all want one. Or do we?

“Kitchen islands can be a mistake if you don’t take your ‘work triangle’ into account,” Baumbusch says.

Walk around the kitchen, following your usual prepping and cooking pattern. If you’re bumping into the island, you may end up hating it.

5. Pay attention to what’s missing

If the home is modern (or previous owners did some upgrading), take a hard look and ask yourself if anything is missing.

Often architects and remodelers will take something out to give a room a cleaner, more minimalist feel, and you may feel the loss after you move in.

“There is a trend to eliminate the bathtub in favor of just a shower,” Baumbusch says. “Some homeowners regret that decision, because sometimes they find themselves wishing for a nice long soak after a tough day.”

6. Pools may not be so cool

You step outside, see a pool and immediately picture all the backyard parties you’re going to have. We know, we know, pools are cool. But pools are also a huge expense.

On top of the regular monthly maintenance and cleaning (and there will be a lot of that), pools in seasonal areas are often opened and closed by a pro. Those costs add up.

“It can cost upward of $600 just to open a pool and prepare it for swimmers,” Baumbusch says.

Moral of the story: Pools are a big regret if the expenses cause a burden. Make sure you can comfortably afford the upkeep.

7. Don’t fall for fads

Today’s popular ice-white appliances, steel countertops, and Edison bulb light fixtures are yesterday’s saloon doors, linoleum, and brass hardware.

If you buy a house just for its trendy look, you may end up regretting it when the styles change, especially if you have to sell the outdated design. Instead, Baumbusch recommends looking for timeless features.

When all is said and done, look for a classic, well-designed home to ensure the smallest chance of stinging regret. It may not sound like as much fun, but you can always add a little (or a lot) of your style in the finishing touches.

20 best cities for trick-or-treating ranked by Zillow by: Inman

While adults might be concerned about mortgage rates and housing prices, only one things matters to most kids on Halloween: Where to get the best candy stash.

There’s just enough time to consider relocating to a new city for a week or two. Zillow analyzed median home value (bigger candy bars), housing density (ability to move quickly from house to house), crime rates (for parents’ peace-of-mind) and share of population under the age of 15.

The big winner? San Francisco was no. 1 on Zillow’s list, followed by:

  • San Jose
  • Los Angeles
  • Milwaukee
  • Phoenix
  • Chicago
  • Boston
  • San Diego
  • Denver
  • Sacramento
2. Map_TrickorTreat_Zillow_Oct2015_c_01

Buying Cheaper Than Renting Til Mortgage Rates Hit 10.5% by: Jed Kolko

Nationally, at today’s prices and rents, buying would be cheaper than renting until the 30-year fixed rate reaches 10.5%. San Jose has the lowest mortgage rate “tipping point” at 5.2%, followed by San Francisco and Honolulu.

The recent rise in mortgage rates has made buying a house a little more expensive: the increase in the 30-year fixed rate over the past month from 3.4% to 3.9% (Freddie Mac) raised the monthly payment on a $200,000 mortgage by $56, or 6%. However, because mortgage rates are still near long-term lows, and because prices fell so much after the housing bubble burst and remain low relative to rents even after recent price increases, buying is still much cheaper than renting. That means that the recent jump in rates doesn’t change the rent-versus-buy math much.

Rates are likely to keep rising, but how far must rates rise before buying a home starts to look expensive relative to renting? To answer this, we updated our Rent vs. Buy analysis with the latest asking prices and rents from March, April, and May 2013. Following our standard approach, we calculated the cost of buying and renting for identical sets of properties, including maintenance, insurance, taxes, closing costs, down payment, sales proceeds, and, of course, the monthly mortgage payment on a 30-year fixed-rate loan with 20% down and monthly rent. We assume people will stay in their homes for 7 years, deduct their mortgage interest and property tax payments at the 25% tax bracket, and get modest home price appreciation (see the detailed methodology and example here). Here’s what we found:

Buying remains cheaper than renting so long as mortgage rates are below 10.5%. At 3.9%, the current 30-year fixed rate according to Freddie Mac, buying is 41% cheaper than renting nationally. With a 5% mortgage rate, buying is still 34% cheaper than renting nationally. Mortgage rates would have to rise a huge amount – to 10.5% – to tip the math in favor of renting, which isn’t impossible. Rates were that high throughout the 1980s, but have been consistently below 10.5% since May 1990.

Each local market, of course, has its own mortgage rate “tipping point” when renting becomes cheaper than buying a home. At 3.9%, buying is cheaper than renting in all of the 100 largest metros, which means the tipping point is above 3.9% everywhere. The tipping point is lowest in San Jose, which would tip in favor of renting if rates reach 5.2%. It’s between 5% and 6% in San Francisco and Honolulu, and between 6% and 7% in New York and Orange County, CA.

10 Metros with the Lowest Mortgage-Rate Tipping Point

# U.S. Metro Mortgage rate below which buying is cheaper than renting
1 San Jose, CA


2 San Francisco, CA


3 Honolulu, HI


4 New York, NY-NJ


5 Orange County, CA


6 Los Angeles, CA


7 San Diego, CA


8 Ventura County, CA


9 Sacramento, CA


10 Oakland, CA


But for 78 of the 100 largest metros, the tipping point is 10% or higher. In fact the tipping point is above 20% in ClevelandMemphisDetroit, and several other metros in the Midwest and South.

10 Metros with the Highest Mortgage-Rate Tipping Point

# U.S. Metro Mortgage rate below which buying is cheaper than renting
1 Detroit, MI


2 Memphis, TN-MS-AR


3 Gary, IN


4 WarrenTroyFarmington Hills, MI


5 Toledo, OH


6 Cleveland, OH


7 Dayton, OH


8 Grand Rapids, MI


9 Akron, OH


10 Kansas City, MO-KS


Of course, the tipping point also depends on how long you plan to stay in your next home (we assume 7 years) and whether you itemize your deductions (we assume you do). For instance, if you don’t itemize, or if the mortgage interest and property tax deductions were eliminated entirely, buying would still be 29% cheaper than renting at a mortgage rate of 3.9%, and the tipping point when renting becomes cheaper than buying would be 7.5%.

But just because buying is cheaper than renting, it doesn’t mean you can buy. Lots of people who want to buy don’t have the downpayment or can’t get a mortgage. Even people who can swing it financially might not be able to buy right away, before rates rise further, because they might not find the home they want quickly with inventory still so tight.

So if the recent increase in mortgage rates doesn’t change the rent-versus-buy equation substantially, why does it matter? The main effect is to reduce the demand for refinancing. Unlike homebuying, refinancing is a relatively straightforward financial decision: although refinancing has upfront costs, refinancing doesn’t require finding a home, thinking hard about your lifestyle, or moving. Since rates have been low for so long, many people who were able to refinance, already have. As a result, the demand for refinancing is now dropping.

For people who haven’t yet refinanced – and for people looking to buy – rising rates do make housing more expensive. Rates are now on the rise and are likely to keep rising, thanks to the strengthening economy and the Fed eventually trying less hard to keep rates low. But it will take big rate increases to turn off prospective homebuyers. At today’s prices and rents, rates would have to rise to levels we haven’t seen in 20 years before renting is cheaper than buying a home on average across the country.

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