Is it Better to Rent or Buy?

by Kay Lynn

For Rent
According to recent research it is better to rent instead of buying a home in San Diego.  There were 50 cities ranked in this survey by Trulia.com.

The determining factor in whether it was better to rent or buy was derived by dividing the average home price by the average annual rent for a 2-bedroom. To be ranked as being a better place to buy the ratio needed to be 15 or less.

Rounding out the top 10 cities with high price to rent ratios are:

1. New York
2. Omaha, NE
3. Seattle
4. Portland, OR
5. San Francisco
6. Oklahoma City
7. Kansas City, MO
8. San Diego
9. Cleveland
10. Dallas

Pete Flint, co-founder of Trulia, pointed out that not they’re not advising not to buy in these markets but rather pointing out that it’s “signficantly more expensive than renting”.    Umm, Pete, we already knew that.  And this is after the housing market collapse a few years ago.

One of my worries in raising a family here is that they’d never be able to afford their own home.  The recent market adjustment allayed those fears even though none of our kids took advantage.  My daughter-in-law already owned her own mortgage home when they married and my younger son plans to be in the public service sector where they have home ownership programs.

Historically housing has appreciated quite nicely here and I believe it will continue to do so in the future.  You will pay more when buying a property but at the end of 30 years you can sell it and get your money back and more.  If you rent that money’s gone. 

In that respect, buying is not a bad deal.  But I’m not so certain about some of the other markets on the list.  The economic prospects of Cleveland might not be the same as San Francisco or New York.  Is it cheaper to rent or buy where you live?

photo credit: dougww 

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{ 7 comments… read them below or add one }

Red June 7, 2010 at 6:25 am

In Knoxville, Tenn., it would take about 28 years of renting to equal the cost of a house, BUT at least you’d own the home, whereas you’d own nothing at the end of a long spanse of renting. Rent is definitely cheaper than a mortgage, but most people renting are students or young professionals.

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Bucksome June 8, 2010 at 5:05 am

Red, I agree that the benefit of home ownership in high cost areas is that you have inadvertently paid for shelter AND saved at the same time.

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Jersey Mom June 7, 2010 at 1:14 pm

I think it all depends on the individual – what they want and what they can afford. Even in NYC, some people prefer to buy because they can + the price will go up. A friend of mine bought a two bedroom condo in NYC a few years ago for $1.5 million. Even with the real estate market the way it is, NYC prices have not gone down. People still want to live there, no matter the cost.

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Bucksome June 8, 2010 at 5:07 am

Jersey Mom, I agree. Even though San Diego housing went down big time for those that owned homes long term were still way ahead of the original purchase price. Mr. Boomer bought our last home for $40K and we sold it for $390K. I think that return beats the average investment.

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Money Funk June 7, 2010 at 1:58 pm

Well, I guess @punchdebt knows this one, as he is looking for a rental for him and future Mrs. Ninja. 🙂 And I agree. With home mortgages being atrocious (here in most sectors of Southern CA), it would be optimal to find a rental from someone that bought their house previous to the housing boom (if not, rental prices are going to be atrocious because they are trying to cover that balloon payment they got themselves stuck in).

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Bucksome June 8, 2010 at 5:10 am

Well, recent owners won’t find any renters if they try to cover their mortgage. The market will force them to drop the asking rent. I think @punchdebt found one of those. I bet within a month the owner will drop the asking rent because its sitting empty.

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Financial Samurai June 12, 2010 at 7:16 am

I’m curious about New York City, with their $5,000/month 2 bedroom rentals. Seems kinda painful. If I had $1.3 mil to easily spend, I’d rather buy.

All depends on the rental yield.

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