With average home prices in Savannah and in many other cities down pretty dramatically from their peaks, buying a home is looking better and better.

Zillow has come up with the “breakeven horizon” for 257 metro areas. That’s the point at which purchasing a home is more economical than renting an equivalent property. The calculations assume 30 year mortgages and average upfront costs of buying a home.

Here in Savannah, the breakeven horizon is down to 2.7 years.

From Zillow’s In Nearly 60 Percent of U.S. Metros, Buying Beats Renting in Three Years or Less:

Below are the breakeven horizons by metro and cities within metros for Q3 2012. 152 out of 257 metros (or 59%) have a breakeven horizon of less than three years. Among the 30 largest metros, New York metro has the longest breakeven horizon at close to 5 years, making it a better place to rent for many people. Detroit has a breakeven horizon of 1.7 years, the lowest horizon among the top 30 metros. Therefore, buying in Detroit ends up being more advantageous than renting for many consumers. Search within your metro to find your cityâ€s breakeven number.

Regrettably, Zillow’s data does not give an estimate for Savannah home prices.

From Zillow, which has been generating some really high quality data and predictions over the last couple of years:

Zillowâ€s July Real Estate Market Reports, released today, show that home values increased 0.5 percent to $151,600 from June to July (Figure 1), marking another month of healthy monthly appreciation. Compared to July 2011, home values are up by 1.2 percent (Figure 2), supported in many places by low for-sale inventory. Inventory shortages are being fueled by negative equity and a slowed distribution of REOs. According to Zillowâ€s first quarter Negative Equity Report, 31.4 percent of homeowners with a mortgage are underwater. A more in-depth analysis of the impact of negative equity on inventory shortages can be found here. In conjunction with rising home values, rents continued to rise in July, appreciating by 0.2 percent from June to July. On an annual basis, rents across the nation are up by 5.4 percent (Figure 3).

Let me emphasize that the percentage of underwater mortgages excludes all homes that are owned outright. Also, the percentage of mortgages underwater should decline significantly with even a slight rise in prices since most mortgage holders are also paying down principal.

A couple of the figures from Zillow:

I might loop back around and talk about that fascinating rental data in a future post.

As upbeat as some of this data looks, it’s not uniform across the country.

Check out this embedded graph from Zillow, with Atlanta, Charleston, and Jacksonville prices compared to the nation as a whole:

Click here to create your own graphs based on metro or statewide data.

The picture is pretty bad in the rest of the Savannah metro area too, with Bryan County at 30% and Effingham County at 38%.

Many and probably most of those mortgages will not result in foreclosures or short sales — folks will just keep paying because they can afford to and have no other options.

That’s just one issue that remains a drag on the local market.

While it’s looking increasingly like home prices nationally might have bottomed or might literally be bottoming right now (several home indices are showing more or less stable prices and Case-Shiller for March is expected to show minimal declines on average), the same can’t necessarily be said about metro Savannah home prices.

The national leveling off makes sense for at least three separate reasons:

• The price-to-rent ratio has returned to an acceptable level, meaning that in many areas home prices and mortgage rates have fallen to the point that buying is now competitive with renting.
• Home prices overall have fallen close to the historical trend line, with price appreciation just slightly above the inflation rate.
• The inventory of existing homes listed for sale has fallen nationally to 6.6 months. That’s still a bit high, but far off the peak — in other words, more sellers will manage to sell sooner than in recent years.

A graph from Calculated Risk:

As you can see, we’ve seen dramatic reductions over last year in the amount of inventory listed for sale, and the months of supply has fallen dramatically because of increased sales and decreased listings. Note that Calculated Risk has drawn a line at the 6-month mark, which is often described as the level at which a housing market is “balanced”. Note, however, that in the early part of this century the inventory was in the 4-5 month range.

As you look hopefully at the falling inventory, keep in mind that we’re going to see an unusually large number of distressed properties continue to come on the market  for perhaps a few years, and we’re going to see tighter lending standards in place for the foreseeable future. Add in a struggling job market (in part because of the weakness in new home construction).

Keep in mind too that 6.6 months is the national average.

In April, the Savannah area MLS had 3,694 residential listings vs. 363 sales (April sales were actually a little less than March). Click here for more data.

That’s 10.2 months of inventory. We have an unusually high level of inventory, especially at some of the higher price points.

And if anyone tries to tell you that the inventory level is back to normal or that the Savannah area is somehow exceptional, don’t believe them. Our inventory has fallen from 13.8 months in April 2011, but it’s still too high to suggest stable home prices.

But there are other forces that might help stabilize home prices, especially the price-to-rent ratio I noted above.

So I doubt we’ll see a broad across-the-board tumble from here, but we’ll likely see continued declines in many areas, however slight. And there’s absolutely no reason to expect any significant appreciation, except perhaps in areas that collapsed under the weight of distressed sales.

Please note that all percentages cited here and in the data are reflective only of the pool of homes that have mortgages. About a third of homes in the country do not have mortgages.

Percentage of homes underwater:

• Chatham County – 37% (in worst 20% of counties nationwide)
• Bryan County – 30%
• Effingham County – 38% (in worst 20% of counties nationwide)
• Duval County (Jacksonville) – 57% (in worst 5% of counties nationwide)
• Jasper County, S.C. – 46% (in worst 10% of counties nationwide)
• Beaufort County, S.C. – 30%
• Charleston County, S.C. – 32%

A screenshot of Zillow's interactive map of underwater mortgages by county

And in the Atlanta metro area, all in the worst 5% of counties nationwide:

• Gwinnett County – 59%
• Dekalb County – 58%
• Fulton County – 49%
• Cobb County – 47%

And in the outer ring of the Atlanta metro area, all in the worst 1% of counties nationwide:

• Newton – 74%
• Henry – 68%
• Clayton – 85%
• Douglas – 70%
• Paulding – 71%
• Rockdale – 64%
• Barrow – 70%

If you’ve been wondering why economists and economic commentators like me have been predicting such a slow recovery for Georgia, just consider all the drag that these numbers create in local, regional, and state economies.

Here in Georgia, we had irrational enthusiasm for housing and a wild west banking system, compounded in the years since the bust by no proactive policies at the state level and by ineffective policies at the federal level.