Dennis Norman
Today, Trulia released it’s “Rent vs. Buy Index” which established a price-to-rent ratio for the 50 largest cities in America (by population), then, based upon that ratio, determined which cities it makes more sense (financially) to rent versus buy.
The index looks at the total cost of home ownership on a monthly basis in each city, including what the house payment would be on a 2 bedroom home at the average list price, plus the cost of property taxes, homeowners insurance, closing costs at the time of purchase, home-owners associations dues and, where applicable, private mortgage insurance. They then compared this to the average monthly rent in the same city for apartments, condominiums and town-homes, then computed the ratio between the two numbers.
Source: Trulia
High foreclosure rates, falling home prices and widespread unemployment have led to multiple Florida and Arizona cities reporting homeownership as more affordable than renting; Detroit and Columbus also made the list of Top 10 Cities for homeownership affordability compared with renting for similar reasons. On the other end of the affordability spectrum, owning is significantly more expensive than renting in national and regional job centers like New York, Omaha and Seattle.
“Higher prices of homeownership in cities like Omaha and Seattle reflect the fundamental real estate truth that people want to live where jobs are relatively plentiful,” said Tara-Nicholle Nelson, consumer educator, Trulia. “Workforce demand has kept prices in these cities at a higher level, relative to other large American cities with less healthy job markets — Omaha, for example, has reported unemployment rates significantly lower than national averages.”
Texas reported interesting complexities with regard to statewide figures for the relative affordability of homeownership, as four Texas cities fell within the top 20 cities where owning is more affordable than renting. In fact, Arlington topped the list of large American cities in which buying is more affordable than renting; El Paso wasn’t far behind at number nine. However, Fort Worth ranked as the nation’s third most rent-favorable city.
Trulia.com Rent vs. Buy Index – Interpretation KeyTop Ten Cities To Buy Instead of Rent - Source: Trulia
Price-to-Rent Ratio of 1-15: It is much less expensive to own than to rent a home in this city.
Price-to-Rent Ratio of 16-20: It is more expensive to own a home in this city. The total costs of ownership of a home in this city are greater than the costs of renting, but it might still make financial sense depending on the situation.
Price-to-Rent Ratio of 21+: The total costs of owning a home in this city are much greater than the costs of renting.
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