While many prospective home buyers are still timidly waiting out a rocky real estate market, in some parts of the country, purchasing a home right now might just make perfect financial sense. According to a recent comparison of rental rates and home purchase prices, 72 percent of the country’s major cities are now areas where it is more affordable to buy a home than it is to rent.
The Q1 2011 “rent vs. buy index”, released by online real estate site Trulia.com, examined prices in America’s 50 largest cities, and found that homeownership was actually more affordable than renting in an overwhelming majority of the areas reviewed.
Below are the top 10 cities where it is better to buy vs rent, according to the index:
1. Miami, FL
2. Las Vegas, NV
3. Arlington, TX
4. Mesa, AZ
5. Phoenix, AZ
6. Jacksonville, FL
7. Sacramento, CA
8. San Antonio, TX
9. Fresno, CA
10. El Paso, TX
The affordability of homes across the nation rose from the Q4 2010 rent vs. buy index, which saw only 18 areas in which homeownership was significantly more affordable than renting. With this survey that number rose to 36 areas.
New York City topped the list of the most expensive places to buy a home, with Seattle, Kansas City and San Francisco not far behind; the four cities were the only ones in which renting was clearly more affordable than buying a home. There were ten metro areas in which costs of homeownership outpaced those of renting, but homeownership was still considered advisable.
The increase in affordability in many areas is likely due to the continuing high number of foreclosure filings—particularly in “boom” places like Las Vegas—which are still affecting real estate prices in the wake of the housing bust. Rents have also been rising in many cities, impacted by an influx of former distressed homeowners moving back into the renter’s market. Difficulties obtaining home loans under stricter lending conditions is also keeping some prospective homeowners as renters for the time being.
The rent vs. buy index uses a metric that surveys median home listing prices as well as median rents. The price-to-rent ratio is computed by multiplying the rent by 12, and dividing it into the average list price. Ratios higher than 21 suggest that renting is a better option, while ratios under 15 suggest strong buy signals. Miami topped affordability with a ratio of 6, while New York City ownership costs blew away those of renting with a ratio of 31.
See Also:
Buying a New vs. Existing
Trulia News Release
Home Buying Tips
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This shows that the markets are starting to swing. Once it becomes cheaper to rent than buy, people will get fed up and take the plunge. Not to mention the increase in investor activity. My market here in Northern, Utah is headed in this direction as well. Renters are having a hard time finding descent rentals these days.
Nice recommendation, Paul!
This information would be very helpful to those people who want to buy a home and to those people renting on the cities included in the list. With this analysis, I strongly agree with you that it’s better to buy a home rather than rent on those cities.
It’s interesting to see Miami is the #1 city where buying is better than renting. I live in Miami and know many people who opt to rent over buying. Given that Florida still has one of the highest foreclosure rates in the nation, I don’t blame them for being too timid to purchase a home. It may encourage them to know how much money they could be saving by buying.
I think at this point it is far to buy if you can afford it, with how low we have sunk, there are just some places it is not possible for a lot of renters to purchase.
It’s nice to grab this opportunity if you have alloted money for this one. It’s really a different feeling if you have a home that is really yours.
Hi Paul,
The list show automatic where there are most foreclosures in U.S. It goes hand in hand the rental prices and the sales prices. So it time to buy in these areas now, before the prices rise again.
Although it may seem the best option to buy at the moment in regards to mortgage repayment vs rent, there are still ongoing expenses involved with owning a home as opposed to renting. Also with these uncertain economic times and little job security maybe best to rent on a short term basis.
if you can afford to buy a house, then its better. but if you cant afford, its good to rent a house in cities.