Owning More Affordable Than Renting in 72% of Major U.S. Cities

Today, Trulia.com released its latest Rent vs. Buy Index which found that it is now more affordable to buy than to rent a two-bedroom home in 72% of America’s 50 largest cities.  

Meanwhile, back at the ranch, a nation of renters has emerged as more Americans choose to rent -- often due to unforeseen financial difficulties. In contrast to the nationwide trend, renting is only less expensive than buying in four of the cities included in this study – namely New York, Seattle, Kansas City and San Francisco. The remaining 10 cities are locations where buying may still be a financially sound long-term decision despite the relative affordability of renting.

“Since the start of the ‘Great Recession,’ many former homeowners have flooded the rental market. Following the principles of supply and demand, renting has become relatively more expensive than buying in most markets,” said Pete Flint, CEO and co-founder of Trulia. “Though necessary for achieving true economic recovery, stricter bank lending practices have also further aggravated the struggling housing market in the short term. Even highly-qualified homebuyers face intense scrutiny on their income, savings, existing debt and credit history before they can get a mortgage loan.”

Cities overwhelmed by foreclosure filings and unemployment, including many cities in Florida, Arizona, Nevada and central California, typically correspond to more affordable markets for prospective buyers; however, there are exceptions. Oakland and Los Angeles, which are experiencing similar rates of unemployment or foreclosure filings as Phoenix, Miami and Sacramento, are still more affordable to renters. Moreover, close proximity to economic centers with promising job growth projections has propped up both the demand for homes and costs of home homeownership in Oakland and Los Angeles.

“Although owning a home is relatively more affordable in most cities, market conditions have caused an interesting demographic swap between traditional renters and buyers,” said Tara-Nicholle Nelson, Consumer Educator for Trulia. “For example, lifelong renters are seizing the opportunity to become homeowners while affordability is high. At the same time, a growing number of long-time homeowners are finding themselves tenants – some by choice and others by necessity.”

Let's see how the numbers shake out:

Top 10 Cities to Rent vs. Buy -- Price:Rent Ratio*

  1. New York 31%
  2. Seattle 24%
  3. Kansas City, MO 21%
  4. San Francisco 21%
  5. Memphis 20%
  6. Los Angeles 20%
  7. Ft. Worth 19%
  8. Oakland 18%
  9. Portland, OR 18%
  10. Albuquerque 18%

Top 10 Cities to Buy vs. Rent – Price:Rent Ratio*

  1. Miami 6%
  2. Las Vegas 6%
  3. Arlington, TX 7%
  4. Mesa, AZ 8%
  5. Phoenix 8%
  6. Jacksonville 8%
  7. Sacramento 10%
  8. San Antonio 11%
  9. Fresno 11%
  10. El Paso 11%

*Methodology: Trulia calculates the price-to-rent ratio for the 50 largest U.S. cities using the median list price compared with the median rent on two-bedroom apartments, condominiums and townhomes listed on Trulia.com.

Sample Price-to-Rent Ratio Calculation:

  • Median List Price: $140,201.37
  • Median Rent: $1,871.65
  • Price-to-rent ratio: $140,201.37 ÷ ($1,871.65 x 12) = 6

Interpretation Key:

  • Price-to-Rent Ratio of 1-15: Owning a home is much less expensive than renting in this city.
  • Price-to-Rent Ratio of 16-20: The total costs of homeownership in this city are greater than the costs of renting, but it might still make financial sense to buy depending on the situation.
  • Price-to-Rent Ratio of 21+: Renting in this city is much less expensive than owning a home.

Definitions:

  • Total costs of homeownershipinclude mortgage principal and interest, property taxes, hazard insurance, closing costs at time of purchase and ongoing HOA dues and private mortgage insurance, where applicable. It also includes an offset for the tax advantages of homeownership, including mortgage interest, property tax and closing cost deductions.
  • Total costs of renting include rent and renter's insurance.

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