The Homa Files

Punch line: If the annual rent for a home is less than 1/15th of a comparable home’s market value … rent, don’t buy.

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Excerpted from WSJ: A Fresh Look at Rent vs. Buy, June3, 2010

Is it cheaper to buy, or to rent?

The cross-over point is about 15 times annual rent.

In other words, as a rough rule of thumb, homes are probably fairly valued in a city when they cost about 15 times a year’s rent.

So, for example, if you’re paying $10,000 a year to rent a place, think twice about buying a home that costs more than $150,000.

So what’s the multiple in New York right now?

The average two-bedroom condo or townhouse in New York city costs about 32 times as much to buy as it does to rent.

Other major markets over 20 times include Seattle (24 times), San Francisco (22 times) and Portland, Ore. (22 times).

On the other hand Miami list prices are now about eight times annual rents. Phoenix is about 10 times and Las Vegas about 11.

Note: a cut-off point at 15 times rents may be on the low side … it assumes you’re only going to stay in your home for the typical seven years. If you stay a lot longer, the transaction costs of buying and selling become less and less important. That makes owning more attractive – hence a higher multiple.

The cult of homeownership makes no sense. If renting is much cheaper than buying, think seriously about it.

Full article:
http://online.wsj.com/article_email/SB10001424052748703561604575282910161870380-lMyQjAxMTAwMDAwNDEwNDQyWj.html

This entry was posted on June 10, 2010 at 6:39 am and is filed under Housing - Mortgages. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.