Jun 10, 2010 3
Trulia’s Rent vs. Buy Index: Fun With Numbers
About a week ago, the good folks at Trulia released their “Rent vs. Buy Index” of the largest 50 U.S. cities by population. The full list of the 50 cities is available here as a PDF. Given the current economic trends, and the rising interest by consumers for rentals, this is a great time for people in real estate to be talking about renting vs. buying.
Trulia didn’t post their full methodology but it does look like they did a good deal of work. From the blogpost describing the Rent vs. Buy Index:
Total costs of home ownership include mortgage principal and interest, property taxes, hazard insurance, closing costs at time of purchase and ongoing HOA dues and private mortgage insurance, where applicable. Total costs of homeownership include 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.
Based on these factors, Trulia concludes:
Price-to-Rent Ratio of 1-15: It is much less expensive to own than to rent a home in this city
Price-to-Rent Ratio of 16-20: It is more expensive to own a home in this city are The total costs of ownership of a home in this city are greater than the costs of renting, but it might still make financial sense depending on the situation.
Price-to-Rent Ratio of 21+: The total costs of owning a home in this city are much greater than the costs of renting.
The analysis was for 2BR apartments, condos, and townhomes — so the rent/buy for single family residences might be different. But the index is a useful tool nonetheless.
Since I’ve written on the rent vs. buy decision before, I thought it would be interesting to look a bit closer at the ratios — although I don’t have the actual numbers that Trulia used — to see what, if anything, might pop out.
