Trulia has released its Summer 2011 Rent vs. Buy Index, which compares the cost of buying and renting a two-bedroom apartment, condominium or townhouse in America’s 50 largest cities based on population. The study found that, based on current market conditions, buying a home is cheaper than renting in 74 percent of major U.S. cities. Meanwhile, it is clearly better to rent in New York, Fort Worth, Omaha, Seattle, San Francisco and Kansas City.
The top five U.S. cities cited by Trulia where buying a residence beats renting includes: Las Vegas; Detroit; Mesa, Ariz.; Fresno, Calif.; and Arlington, Texas. Renting remains cheaper than buying in the following cities, New York, N.Y.; Fort Worth, Texas; Omaha, Neb.; Seattle, Wash.; and San Francisco.
"While recent stock market volatility on top of the slow economic recovery makes homebuyers nervous, it has not destroyed the American dream of homeownership. However, 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. “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.”
Buying a home in cities flooded with foreclosures continues to be considerably cheaper than renting, but this may be poised to change in the coming months. In Miami, for example, it is still less expensive to buy, but a mini-buying boom created by foreign 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, on the other hand, continues to be the best place to buy instead of rent for the past six months.
“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.”