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.
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14 Comments so far
leave a commentI wonder how much the stats are influenced by the inventory in the area. NYC and Chicago wouldn’t have the problem, but in places like Jacksonville, where the “kinds” and qualities of homes that are for rent or for purchase vary so greatly, I wonder if they look good simply because there are a ton of low-end homes and high-end, beachfront apartments?
I’m sorry, but the average list price in NYC is NOT 1.3 million. If you’re only including Manhattan, maybe, but if you include the other 4 boroughs that number goes down significantly.
@Erik: curious…are you living in NY right now? I totally believe the $1.3 million figure includes the outer boroughs. I’m actually surprised it’s so low. Leave aside the fact that they’re talking the average figure, not the median figure (so a few big sales can have a real impact on the number)…outer borough prices haven’t been corrected as much by the downturn as they’ve been elsewhere, unfortunately….
I can speak to Brooklyn best: $1 million is the absolute baseline for houses in the half of the borough closest to the city. You’d think it would be cheaper down by Coney Island…you’d be wrong. Take last week: there was a $7.1 million sale of a small two-family house in Gravesend. GRAVESEND! It takes almost an hour to get to midtown from there. But people pay a mint to stay in their home neighborhoods…(Staten Island is the same way…I’ve lost count of the number of multi-million $$ McMansion sales I hear about from there — which frankly kind of boggles my mind. No offense, SI people)
The Queens prices include those big Forest Hills houses, and the Bronx figures all the nice homes in Riverdale, and up near Westchester. And of course, all those millions of renters in all the boroughs all live in apartment buildings which are owned by someone…and when they sell, they’re not selling cheap.
erik & brooklynborn,
would love your feedback or anyone else with good insight. my wife and i are considering a 2bd/2bat brand new condo in downtown brooklyn. 10 yr tax abatement with $1000 a month service charges. it’s $700K – i have $200K for downpayment. unsure if we’ll stay in ny more than 4 years though. building is 50% occupied. buy or keep renting?
I live in Cleveland and that stat is total bullshit. There is NO home in cleveland over $200K. You must be including suburbs. Also rent in cleveland DOES not go over $850 and that is for the best area. Average is $500.
Well, there ARE some houses in Cleveland proper that go over $200K – in the Edgewater neighborhood, for example. Plus a bunch of condos in downtown/Tremont/Ohio City.
In fact, I’d bet that a handful of these pricey homes & condos have skewed the numbers WAY too high for both purchase price and rent price.
This is why AVERAGES suck for these kind of analyses. Median prices would reflect some kind of reality.
Remember, if Bill Gates walks into the room, everybody’s AVERAGE worth goes up by millions.
i live in cleveland and those numbers seem incredibly inflated. even my friends in the nicest areas pay about $800/mo for renting a 2bed/2bath. And $245,000 the average for a house?!!! you’d be living in a frigging mansion for that here.
Ummmm pardon me but buying is nearly always better than rent, renting gives you no vested interest whatsoever and no equity.
these people don’t know what the hell they are talking about. I have lived in kansas city all my life, the average rent here is between four and six hundred dollars. The only rent that runs as high as they are talking about is around downtown kc. Which is only a very small part of the metro area.
I live in Minneapolis, who pays $1,700 for rent here? That number is absurd. I currently live in a decent 2 bedroom, close to downtown and the new Twins park and my rent is 795, less than half their total. I would guess average rent to be $900ish. There are TONS of places in the 450-600 as well as luxury places starting around $1,500.
totally agree BC. Who wold pay $1700 in mpls? how is that average? whoever wrote this article did no research.
I can’t speak for other cities, but NY numbers are way off. First of all they should be looking at mean numbers and not average. A few large sales can easily skew the average. Secondly, the rent numbers are also skewed because the more expensive a property get the less likely it is that someone is renting it.
my God, i thought you were going to chip in with some decisive insght at the end there, not leave it with �we leave it to you to decide�.
@bruno OT BUY, BABY BUY! Born and raised in Bklyn, downtown Bklyn has changed immensely! Do it now! Mortg. rates are as low as 4.8. Good luck!