News In Brief

To rent or not to rent — that is the question

Katharine Crnko Dec 23, 2010

Mark Zandi of Moody’s Analytics has released a list of 55 U.S. cities organized according to how cost effective it is to rent a home, rather than to buy.

The list is organized by ratios: the price to buy a typical home divided by the annual cost of renting that home. So, the higher that number, the more expensive it is to buy versus rent.

Here is a list of the top 5 cities where it is more efficient to rent a home rather than to buy.

Metro area — Ratio

East Bay, Calif. — 35.9

Honolulu — 34.4

San Jose, Calif. — 32.7

San Francisco — 27.9

Seattle — 27.3

Take for example, San Francisco, which is near the top. Its ratio number is 28 — meaning homes there are quite expensive, and most people can only afford to rent.

And on the opposite side of the scale, these are the cities where it is most cost-efficient to buy a home, rather than rent.

Metro area — Ratio

Dallas – Fort Worth — 13.8

Phoenix — 13.3

Detroit — 12.4

Cleveland — 11.7

Pittsburgh — 11.4

These cities represent two ends of the recession spectrum: cities that were hit hardest by the recession (such as Phoenix and Cleveland), and cities that weather the recession the best (like Pittsburgh and Dallas).

Marketplace’s Eve Troeh talked to Mark Zandi at Moody’s about this. He says home prices have dropped a lot, about 30 percent. So when we see these high ratios for buying versus renting, it shows how skewed the markets are.

MARK ZANDI: “It highlights how high prices got during the bubble…you kind of forget that given that we’ve been through five years of the housing crash, but in the bubble prices really did get juiced up.”

You can hear Eve Troeh’s report on Zandi’s list here:

You can view the complete list here.

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