Today, Trulia.com announced their first quarter “Rent V Buy Index” outlining the top 50 largest cities in America. The RVB Index points out one of the most wildly swinging pendulum in the real estate industry. As foreclosures continue to be prevalent and buyer hesitation continues, renting is becoming more common and less culturally passé.
It looks like Trulia is already utilizing the Movity methodology so soon into their acquisition- they’ve built a pretty cool interactive tool that allows you to see a variety of factors and how the have an impact on whether it is more advantageous to rent or buy.
Good news for Realtors- in the RVB Index, Trulia notes that in 72% of the 50 largest cities, it is more affordable to buy than rent a two bedroom home. So maybe it’s not quite time to ditch the letter R dues in lieu of apartment locating…
The study takes into account what they’re calling “grey areas” where it can kind of go both ways and in 8% of the cities, it was more affordable to rent (and I would suspect that it is far more affordable to rent in these chic metros).
Full press release:
HOMEOWNERSHIP MORE AFFORDABLE THAN RENTING IN 72 PERCENT OF MAJOR U.S. CITIES DESPITE GROWING CONSUMER PREFERENCE TO RENT
Trulia’s Rent vs. Buy Index Identifies Miami, Las Vegas, Arlington, Mesa and Phoenix As Nation’s Most Affordable Markets to Buy Compared to Renting
SAN FRANCISCO, January 24, 2011 – Trulia.com (www.trulia.com), a top site for homebuyers, sellers and renters, today 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 percent of America’s 50 largest cities . Meanwhile, a nation of renters has emerged as more Americans rent by choice or due to unforeseen financial difficulties. In contrast to this 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.”
Top 10 Cities to Rent vs. Buy
Rank City State Price:Rent Ratio
1. New York NY 31
2. Seattle WA 24
3. Kansas City MO 21
4. San Francisco CA 21
5. Memphis TN 20
6. Los Angeles CA 20
7. Fort Worth TX 19
8. Oakland CA 18
9. Portland OR 18
10. Albuquerque NM 18
Top 10 Cities to Buy vs. Rent
Rank City State Price:Rent Ratio
1. Miami FL 6
2. Las Vegas NV 6
3. Arlington TX 7
4. Mesa AZ 8
5. Phoenix
AZ 8
6. Jacksonville FL 8
7. Sacramento CA 10
8. San Antonio TX 11
9. Fresno CA 11
10. El Paso TX 11
• For an infographic illustrating the above findings, click here.
• For a full list of Rent vs. Buy Index rankings for the 50 largest U.S. cities, click here.
• For a list of consumer-oriented tips on the Top 5 Hidden Costs of Renting and Buying a Home, click here.
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 homeownership 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. 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.
About Trulia, Inc.
Trulia.com is the fastest growing online real estate site focused on empowering buyers, seller and renters with smarter tools to help you find the right home. Trulia is headquartered in downtown San Francisco and is backed by Accel Partners and Sequoia Capital. Trulia is focused on helping you find the home that truly meets your needs, and delivers on what’s most important for you. Ultimately, we built a smart real estate search experience bringing together local information, community insights, market data and national listings all in one place.
Ruthmarie Hicks
January 25, 2011 at 12:37 pm
New York City is still unfavorable – but Westchester is pretty much a wash. When I do the numbers for buyers – it is pretty much even. That is good part because we have a big coop market. I think people should start looking at buying even in NYC. I don’t know the particulars about Manhattan but – I know that rents have been artificially low in both Manhattan and Westchester. Once again, I’m not sure about Manhattan, but in Westchester about 30 minutes from mid-town, the rents that have been very low are starting to come back up. So the affordability here is starting to move from renting to owning. Buyers in the area generally might be wise to lock in stability before interest rates, prices, and rent start going up. The cheap rent cycle is probably going to come to an abrupt end and be a rude awakening for fence -sitters who thought they could steal a home if they waited long enough.