Wednesday, April 21, 2010

Economic Scene - As Markets Fizzle, Buying May Cost Less Than Renting - NYTimes.com


Long story in this morning's New York Times about renting vs. buying a home.

The most interesting part to me was the concept of a "rent ratio" Here's a couple of paragraphs from the article discussing the concept:

A simple way to do the comparison is to look at something called the
rent ratio: the purchase price of a house divided by the annual cost of renting a similar one. The number 20 provides a useful rule of thumb. When you do the math, you discover that a ratio above 20 means you should at least consider renting, especially if you may move again in the next five years or so. When the ratio is well below 20, the case for buying becomes a lot stronger.

In many large metropolitan areas, including New York, Los Angeles, Chicago, Houston, Dallas, Atlanta and South Florida, the average ratio is now 16 or lower. It was more than 25 in several of these places at the peak of the bubble, about five years ago. With a ratio as low as 16 and interest rates as low as they are, the costs of owning can be less than the costs of renting — and buyers will end up worse off only if prices fall considerably more.


Economic Scene - As Markets Fizzle, Buying May Cost Less Than Renting - NYTimes.com