Earlier this month Trulia released a comprehensive look at the difference between renting and buying in major American cities. They created a list of the top ten cities where renting is a better financial decision than buying, and another top ten list that shows where it’s smart to go after that dream house.
The findings might surprise you.
Here’s how the Trulia blog post explains the methodology behind their lists: “Trulia calculated the price-to-rent ratio using the average list price compared with average rent on 2 bedroom apartments, condos and townhomes listed on Trulia.com. To create the list, Trulia analyzed the largest 50 cities in America, by population.”
The list is Trulia-data exclusive--which makes it pretty reliable, in my opinion. A lot of agents use Trulia to market their listings, and although this should be considered a representative sample, the numbers probably wouldn’t differ too much from a larger pool of listings.
Trulia includes a handy interpretation key to help readers decode their cryptic rating system.
If a city’s Price-to-Rent Ratio is between 1-15, it’s cheaper to buy than rent.
If the number rises to 16-20 it’s more expensive to own than rent, but not by much. Basically that’s the circumstances matter category.
Anything above 21 indicates that in this city, the overall costs of owning your own home are significantly higher than renting.
Trulia smartly takes into account all the added bonus costs of home ownership, include mortgage principal AND interest, closing costs, mortgage insurance, etc., and they even factor in some leeway for the tax advantages of owning your own property.
Let’s start with the best cities to buy vs. rent.
First on the list? Minneapolis, Minnesota, with a Price to Rent Ratio score of 8. I’ve heard a lot of great things about this town: Minneapolis has a great literary and theater scene, awesome food culture, a mellow, friendly vibe, and is still extremely affordable despite its burgeoning popularity. I hope this number one ranking doesn’t go to its head…
Trailing Minneapolis, in descending order, are Arlington, Texas; Miami, Florida; Fresno, California; San Antonio, Texas; Mesa, Arizona; Jacksonville, Florida; Phoenix, Arizona (not surprised to see this city here); El Paso, Texas; and Las Vegas, Nevada.
Excluding Minneapolis, I’m surprised by how many of these cities are in the Southern/Southwestern reaches of the country. Any theories on why it’s cheaper to buy vs. rent where the sun is always shining? Is it because cities like Phoenix, Las Vegas, and Miami, got hit the hardest when the bubble burst, and now sellers have to compete with foreclosures flooding the market?
And the best cities to Rent vs. Buy are…..
New York City is number one, of course, with a whopping Price-to-rent Ratio of 33. Cue feigned surprise.
Following in New York’s footsteps are Omaha, Nebraska; Seattle, Washington; Portland, Oregon (a little surprised to see this one, would loves to hear from natives on what the real estate market’s like there… Portland’s such a great city); San Francisco, California; Oklahoma City, Oklahoma; Kansas City; Missouri; San Diego, California; Cleveland, Ohio; and Dallas, Texas.
Of course New York, San Francisco, San Diego, Seattle, even Dallas are all big renter’s cities. But it’s kind of weird to see those Midwestern towns heading up the list. Omaha? Kansas City? Cleveland? In those cases I think it’s important to remember that even though it’s technically cheaper to rent, prices have dropped so much there might be many affordable housing options available.
Trulia’s blog post had over fifty comments, with many readers chiming in about the intangibles of buying vs. renting/renting vs. buying---the security and emotional connection that comes with homeownership and might be worth the extra financial strain, the flexibility renting offers those who have to move often, or aren’t quite ready to settle in one place. The only thing that really determines whether renting or buying is right for you, no matter where you are, is YOU.
I’m interested in what you think--both about the list, and the importance of lists like this in the first place. How much would you take these numbers into consideration if you were looking to rent or buy in any of these cities?
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