January 4, 2012
In some areas, renters are especially wise to resist the urge to buy since even the out-of-pocket costs of a mortgage payment far exceed those of monthly rent (never mind the other hidden costs like insurance, property taxes and mortgage interest associated with buying).
Several factors may make a local market an exceptionally good place to lease. If developers have overinvested in apartments, the supply glut drives down rents. If zoning restrictions, high land values, or lack of buildable land limit the number of new houses, home prices can balloon. And in highly desirable areas, most of the available housing stock may be built with the well-off in mind, leaving few options for those wanting an affordable mortgage payment.
Related: The New American Dream: Rent, Don't Buy
Below are a dozen markets where renting is cheaper than buying (though in some rare cases – if a person is planning to stay longer than 25 years and has a stable job – buying can still be a smart option to build equity and savings). We identified these using a methodology based on that used by Trulia.com in producing its quarterly “rent versus buy” index. We calculated the price-to-rent ratio for a market by dividing the median list price of a house (using Zillow.com’s latest “Real Estate Market Reports”) by the average rent for that market on a two-bedroom apartment (using figures from apartmentratings.com). We then used Trulia’s guideline – a price-to-rent ratio of 21 or more (meaning a person would have to stay over 26 years in the home for buying to pay off) –to identify local markets in which renting is much less expensive than owning.
Click here to see 12 markets where it’s better to rent.