NEW YORK – Aug. 31, 2009 – To determine whether it makes more sense to rent or buy in the current economic climate, experts encourage people to examine the price-to-rent ratio, or the average cost of purchasing a house divided by a year’s worth of rent payments.
The ratio reached 24.7 in 2005, according to Economy.com, meaning that individuals could spend 24.7 years in a rental for what it would cost to buy a house. The ratio has fallen to 17.4, and Economy.com notes that the historical average since 1986 is 16.5.
While some believe falling house prices make homeownership a better choice right now, an Economy.com analysis of the price-to-rent ratios in 54 metropolitan areas shows that renting is a better deal than homeownership in 21 cities. Some of the so-called “renter –friendly” cities are Portland, Ore., Baltimore, Raleigh, Charlotte, Salt Lake City, San Antonio, Trenton, Philadelphia, Honolulu, and Seattle.
Center for Economic and Policy Research Co-Director Dean Baker says the price-to-rent ratio should not be the only consideration. People weighing whether to rent or buy also should consider that renting makes more sense if they plan to move in a couple of years, and renting allows them to live in neighborhoods where homeownership might be too costly. Additionally, they do not have to perform maintenance tasks if they live in a rental.
Source: Time (08/31/09)
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