The real estate market continues to trundle along, now that the homebuyers tax credit has expired and with it, the rush to sign a contract and qualify for $8,000 of free money. On June 22, the National Association of Realtors announced that existing home sales completed in May were down 2.2% compared with April, confirming expectations that the housing recovery will slowed down once the government’s incentives expire. (There was some good news, though: compared with the same period in 2009, sales were up 19.2%.)
That said, relatively low home prices throughout the country have caused many people to consider the issue of buying versus renting. In some areas, prices have declined so much compared to rents that buying a house may actually make more economic sense. In others, despite price declines, renting is still more economically viable. Real estate listing website Trulia.com recently released its new Buy vs Rent index, ranking the top 10 cities in the United States where buying makes most sense, as well as the top 10 cities where you should rent. How did they decide? With the help of the so-called buy/ rent ratio, which is basically the average price of a home in an area divided by the average rent charged per year. If the result is 15 or lower, that means homes in that area are priced so low that buying is cheaper than renting. If the buy/ rent ratio is 20 or higher, the case is stronger for being a renter.
Ultimately, of course, the decision to buy or rent should be based on much more than plain numbers and statistics. Homeownership enables you to build equity over the long term, but comes with costs beyond a home’s purchase price (such as property taxes and maintenance, the broker commissions and other costs associated with selling that home) that require a committment of at least five or six years to be recouped. You build no equity by renting, on the other hand, but you have the freedom to move at a month’s notice. The debate could go on and on.
In the infographic below, we give you the results of Trulia’s analysis, along with some interesting facts on buying versus renting, including the average net worth of home owners compared with that of renters in recent years, from the Federal Reserve Board.