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2010-08-02 22:42:07

Decide to Rent or Buy by City

According to a new index compiled by Trulia.com, it’s becoming much easier to tell whether the time is right for you to rent or buy a home in your community.
With approximately 30% of its site visitors debating the rent or buy question, the company created an index of 50 major cities that weighs the financial merits.
Using a typical two-bedroom condo or townhome listed for sale on Trulia.com, economists calculated criteria for renting, including rent and renter’s insurance.
 
Buying a home included mortgage principal and interest, property taxes, hazard insurance, closing costs at the time of purchase and ongoing HOA dues and private mortgage insurance, where applicable. Total costs of homeownership include an offset for the tax advantages of homeownership, including mortgage interest, property tax and closing cost deductions.
 
Trulia interpreted the index in the following way:
 
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.

 
With an index of 8, Minneapolis grabbed first place, where the cost to buy is about $150,000 while the annual rent was about $20,400. With buying costing less than eight times the annual cost of renting, homeownership is the better deal.  

At the opposite end of the spectrum is Manhattan where the rent to buy ratio at 33 favors renters. In other words, it will cost you 33 times the annual cost of renting to own a home in Manhattan, longer than it would take to pay off a 30-year mortgage.  
Keeping in mind that rents tend to rise and fall with less volatility than housing prices, the Trulia index is designed to be a snapshot of the community.

Explains Pete Flint, co-founder of Trulia, “It is not a surprise to see cities like New York and San Francisco on the ‘Rent’ cities but I was surprised to see areas like Omaha, Oklahoma City and Kansas City on our rental list.”

That doesn’t mean those cities don’t offer great deals when it comes to buying, said Flint. “We're not suggesting that it's unwise to buy in these areas though - just that it's significantly more expensive than renting. In many of these cities, even though home buying is much more costly than renting, prices are still much lower than they have been in a long, long time.”

With federal home buying incentives gone, consumers have only local market conditions and mortgage interest rates to guide them in determining the merits of buying.
 
Currently mortgage interest rates are hovering near record lows, which could swing more consumers into the ownership camp.

To see the Top 50 City Rent v Buy Index, please click here to download.
 

Blanche Evans is CEO of Evans Emedia, Inc. and publisher of The Evans Ezine. As an award-winning journalist, Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and twice recognized as one of the industry's most "Notables."   
 

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