AMID RISING RENTS AND RECORD-LOW PRICES, HOMEOWNERSHIP MORE AFFORDABLE THAN RENTING IN 98 OUT OF 100 MAJOR METROS

SAN FRANCISCO, March 21, 2012 – Trulia today released its Winter 2012 Rent vs. Buy Index, which tracks whether it is more affordable to rent or buy a home in America’s 100 largest metropolitan areas. Based on asking prices for rental units and for-sale homes on Trulia.com between December 1, 2011 and February 29, 2012, the index reveals the relative cost of renting versus buying for similar homes in similar neighborhoods.

Buying Trumps Renting in 98 Out of 100 Major Metros
After years of home price declines and tightening rental markets, homeownership is now more affordable than renting in all but two of the 100 largest metros – even in expensive real estate markets such as New York, Los Angeles and Boston. Only in Honolulu and San Francisco is renting often a better deal than buying. However, buying a home in these markets might make sense for people who plan to stay in their next home for at least five years and can benefit from the mortgage-interest tax deduction.

 

Top 10 Metros to Buy vs. Rent

 

 

Top 10 Metros to Rent vs. Buy

NOTE: The lists above rank the major metros where renting a home is most expensive relative to buying, and vice-versa. Price-to-rent ratios that are 15 and under indicate buying is less expensive than renting, while ratios that are 20 or higher indicate renting is less expensive than buying. Between 15 and 20, the rent-versus-buy calculation depends on tax deductions and other personal circumstances.

 

Rent in the City, Buy in the Suburbs
In Manhattan, renting a home is more affordable than buying. This is also the case in Brooklyn and Staten Island, where priced-out Manhattanites have bid up home values in many neighborhoods. However, owning a home is still cheaper than renting in Queens, the Bronx and nearby suburban counties.

                                                                                                                                                

In the San Francisco Bay Area, homeownership is most expensive relative to renting in San Francisco, the Peninsula (San Mateo County) and in the South Bay (Santa Clara County). In the East Bay (Alameda County and Contra Costa County), where vacancies are higher and foreclosures more common, buying looks even better relative to renting than in the rest of the Bay Area. But the region overall has become more affordable, especially in San Francisco and San Mateo counties, where the price-to-rent ratio dropped more than three points between Winter 2011 and Winter 2012.

                                                                                     

 

Bedroom Size Matters in Rent vs. Buy Debate
Even in real estate markets where buying is generally cheaper than renting a home, renting might actually be a better deal on a larger house. In most major metros, the price-to-rent ratio is lower for smaller homes, so buying seems even more affordable relative to renting for a one-bedroom or studio home than for a home with three or more bedrooms. In fact, renting a home with more than two bedrooms can be less expensive than buying in New York, NY-NJ and San Francisco. Size however factors less into the rent versus buy decision in Chicago and Miami.

 

PRE-APPROVED QUOTES

• “As rents rise and prices stagnate, homeownership is becoming even more affordable, but rising rents create a dilemma for people who can’t afford to buy yet,” said Jed Kolko, Trulia’s Chief Economist. “Rising rents make it harder for people to save for a down payment, which is the biggest barrier to buying a home that aspiring homeowners face.”
• “People will pay more for a home if they expect prices to rise and give them a better return on their investment,” said Jed Kolko, Trulia’s Chief Economist. “Metros where homeownership is expensive tend to have stronger long-term economic growth and little room to build new homes, like Boston and the San Francisco Bay Area, where people expect home prices to increase over time. Buying is much cheaper than renting in slow-growing places with high vacancy rates and land to spare, like Detroit and Cleveland, where prices are unlikely to improve much in the future.”

 

MULTIMEDIA

• To view an interactive data visual illustrating where renting beats buying, click here.
• To view a slideshow of the findings, click here.
• To view a full list of Rent vs. Buy Index rankings for 100 major U.S. metros, click here.

 

METHODOLOGY
Trulia calculates the price-to-rent ratio for 100 major U.S. metros by estimating the ratio of asking sales prices to asking rents, after adjusting for attributes of the properties and their locations. The ratio reflects the relationship between sales and rental prices for units with similar attributes in similar neighborhoods. The Winter 2012 report is based on asking prices for sale and rental homes on Trulia.com between December 1, 2011 and February 29, 2012.

 

Sample Price-to-Rent Ratio Calculation (after adjusting for property attributes and neighborhood attributes):

• Asking Sales Price: $200,000
• Asking Monthly Rent: $1500

Price-to-rent ratio: $200,000 ÷ ($1,500 x 12) = 11.1

Interpretation Key:

• Price-to-Rent Ratio of 15 or less: Buying a home is a better deal than renting for people planning to live in a home for at least five years. However, if the buyer is planning to live the home for less than five years, buying could be a better deal if the index is 10 or less, depending on moving and closing costs.
• Price-to-Rent Ratio of 15 to 20: Renting or buying a home could be a better deal, depending on a prospective homebuyer’s tax bracket and if they plan to itemize their tax deductions.
• Price-to-Rent Ratio of 20 or more: Renting is a better deal than buying a home, except for people planning to live in a home a very long time (fifteen years or more).

 Note: These interpretations take into account estimates of the additional costs of homeownership or renting, such as insurance, maintenance and so on.

 

 

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