A new report says the cost of home ownership is a better deal than renting in three out of four U.S. cities.
It assumes buying a home is easier than it is to rent and, as many consumers discover, it ain’t.
Tight lending standards, coming up with a down payment and the carrying costs of owning a home (taxes and insurance) force many into a rental unit even if it is “more expensive” than buying.
“Prospective homebuyers, who are ready and qualified to buy, face an uphill battle despite falling home prices and record-low mortgage rates,” said Ken Shuman, Head of Communications at Trulia.
Shuman added, “Today, many banks are actually less enthusiastic about approving residential mortgage applications, which has dragged out the home buying process. Until a middle ground on lending practices can be met, many highly-qualified buyers may be forced to be renters by choice for now.”
Trulia’s Summer 2011 Rent vs. Buy Index says in 74 percent of major U.S. cities offer owner-occupied housing that’s cheaper than a rental unit.
The report compares the cost of buying and renting a two-bedroom apartment, condo or townhome in the nation’s 50 largest cities.
The top cities with a better deal for ownership were Las Vegas, NV; Detroit, MI; Mesa, AZ; Fresno, CA; and Arlington, TX.
Rents were the better deal in New York, NY; Fort Worth, TX; Omaha, NB; Seattle, WA; and San Francisco, CA.
Trulia’s price-to-rent ratio is the median listing price divided by the annualized median rent. Buying is less expensive than renting when the ratio is 15 and under, renting is less expensive than buying whine ratios are 20 or higher.
There is a grey area between the rent versus buy spectrum. Personal circumstances, including your tax bracket, may make buying a home a better deal in Oakland, CA; Austin, TX; San Jose, CA; Memphis, TN; Boston, MA; Los Angeles, CA and Portland, even though rents are relatively cheaper.
“Many aspiring homeowners are on the fence about renting and buying in today’s market. Should they take advantage of falling home prices and low borrowing costs, or should they continue to rent until the economy stabilizes?” said Shuman.
“Price alone should never be the sole factor in deciding to purchase a home. Instead, buyers should first ask themselves if they plan to live in the home for at least seven-to-10 years, could make monthly payments on the house, and have enough cash in the bank for a down payment and an additional six to eight months worth of mortgage payments. If you can answer ‘yes’ to each of these questions, then the cost of buying a home definitely outweighs renting in most cities,” he added.
Also, buying a home makes more sense in cities overloaded with foreclosures, but that could soon change, says Trulia.
In Miami, for example, it is still less expensive to buy, but a mini-buying boom created by investors and foreclosure freezes have caused its price-to-rent ratio to jump by 112 percent from 6 in January to 13 in July.
Meanwhile, recent job gains in the auto industry have not countered Detroit’s falling home prices. For now, the city has experienced a setback since January with its price-to-rent ratio dipping 39 percent.
Las Vegas, continues to be the best place to buy instead of rent for the past six months, but investors are snatching up most of the distressed properties there.
“While recent stock market volatility on top of the slow economic recovery makes homebuyers nervous, it has not destroyed the American dream of homeownership,” Shuman said.