Renting vs. Buying: Which Is Cheapest Where You Live?

Photo (cc) by Julia Manzerova

Here’s good news if you are thinking about buying a home: Mortgage interest rates are still low and, The Washington Post reports, home prices finally appear to be settling down. If you have the credit and the down payment and think you’ll stay in the same place for several years, owning a home may be your best bet.

Buying’s expensive, renting’s worse

But, wait a minute. Home prices have been rising rapidly in the last two years all over the U.S. In some cities it’s become too expensive for many people to own. Just because buying is the cheaper option doesn’t mean you can afford it.

Unfortunately, renting is often even more expensive. You’d think that as buying has grown increasingly expensive, renting would be a refuge. But that’s not always the case.

Renters are in a bad spot. The rule of thumb for maintaining a balanced household budget is to limit housing costs to 30 percent of your monthly income or less. But many renters are finding this impossible. In the recent article, “In Many Cities, Rent Is Rising Out of Reach of Middle Class,” The New York Times says:

Nationally, half of all renters are now spending more than 30 percent of their income on housing, according to a comprehensive Harvard study, up from 38 percent of renters in 2000. In December, Housing Secretary Shaun Donovan declared “the worst rental affordability crisis that this country has ever known.”

But it all depends on where you live

It’s hard to believe, after home prices crashed and the U.S. was awash with empty houses a few years ago, but housing has become too expensive for a great number of Americans.

Whether buying or renting is more cost-effective for you depends largely on where you live. This Business Insider video explains how to know which is best:

If you can buy a home for 20 times the annual rent, then it may be a good idea. Otherwise renting is almost always a better deal.

Example: You’re renting for $1,600. If you can find an equivalent home to buy for $384,000 or less ($1,600 X 12 months X 20), it’s better to buy if you can.

Even easier

Here’s another dead-simple way to know which is cheaper: Find your community on this Zillow interactive table (midway down the page). It shows buy-rent ratios for every ZIP code, neighborhood, city, county and metro in the U.S.

The buy-rent ratio (sometimes called price-to-rent ratio) is figured by dividing a city’s median home price by its average annual rent. The lower the number, the better the case for buying. Above 20, renting is more cost-effective in the long run.

As the Zillow table shows, even in some of the country’s most expensive metros, like Washington, D.C., Santa Barbara, Calif., San Francisco, Boston and Portland, Ore., it’s slightly cheaper to rent than buy.

Data on your town

The table has lots of local data, including:

  • Predicted rent increases.
  • Home-price appreciation.
  • Median rent.
  • Median home value.
  • “Breakeven Horizon,” the point at which (in years) living in a home you bought becomes cheaper, overall, than renting a comparable place.

Zillow explains that last concept: “In other words, after buying and living in a home for more years than indicated by the Breakeven Horizon, homeowners begin to have more money and assets than they would have if they had rented the same home over that same time period.”

Here are a few highlights from Zillow’s research:

  • Santa Cruz, Calif., (21.3) and San Jose, Calif., (20.7) are the only two U.S. cities where renting is (slightly) more cost-effective than buying, according to the table.
  • The median rent in Santa Cruz is $2,218 and the median home price is $569,707. The median rent in San Jose is $2,894 and the median home price is $726,790.
  • Even in expensive Honolulu (19.7), buying has a slight advantage.There, the median rent is $2,235 and the median home price is $549,335.
  • The lowest price-to-rent ratio (4.6) is in Olean, N.Y. There, the median rent is $1,424 and the median home price is $77,302.

There are other calculators and ways of looking at the rent vs. buy problem. But your bottom line, in a very expensive city, may have less to do with the decision whether to rent or buy and more to do with the realization that it’s time to move somewhere more affordable.

How are you and your friends and family dealing with the increasing cost of housing? Tell us in the comments below or post a comment at Money Talks News’ Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
15 Great Amazon Finds You Can Buy for Less Than $5
15 Great Amazon Finds You Can Buy for Less Than $5

These products offer big value at a small price.

13 Brilliant Bulk-Buy Items on Amazon
13 Brilliant Bulk-Buy Items on Amazon

Every household should have these products on hand. Buying them in bulk on Amazon saves you cash.

10 Types of Retirement Income That Are Not Taxable
10 Types of Retirement Income That Are Not Taxable

There are lots of things Uncle Sam can’t touch — so long as you play by the rules.

2-Minute Money Strategy: How Should I Invest My Retirement Savings?
2-Minute Money Strategy: How Should I Invest My Retirement Savings?

If retirement is on the horizon, you can’t afford to take too much risk, but you also need to make as much as possible. Here are your options.

12 Ways to Never Pay Full Price for Anything
12 Ways to Never Pay Full Price for Anything

Stop paying retail prices. Here are plenty of ways around that.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

How to Buy Gas At Costco Without a Membership
How to Buy Gas At Costco Without a Membership

The warehouse club often has some of the cheapest gas in town. Here’s how you can get it as a nonmember.

10 Things to Stop Buying If You Want a Clutter-Free Home
10 Things to Stop Buying If You Want a Clutter-Free Home

If you like to keep things simple, avoid these purchases.

A Simple Way to Silence Robocalls Today
A Simple Way to Silence Robocalls Today

A few steps can keep your phone from ringing when a spammer calls.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

This iconic dinnerware is prized for everyday use as well as reselling for profit.

This Company Makes the Best Tires in America
This Company Makes the Best Tires in America

Driver satisfaction with tires is at an all-time high, but one brand stands out.

7 Home Improvements That Cost a Lot More in 2021
7 Home Improvements That Cost a Lot More in 2021

These projects will take a bigger bite out of your budget than in the recent past.

This Health Issue Can Hint at Dementia Years in Advance
This Health Issue Can Hint at Dementia Years in Advance

One type of pain is especially associated with cognitive decline.

Can I Switch to Spousal Social Security Benefits When My Ex Dies?
Can I Switch to Spousal Social Security Benefits When My Ex Dies?

Knowing when to claim can help you maximize benefits.

Medicare Will Not Cover These 6 Medical Costs
Medicare Will Not Cover These 6 Medical Costs

Don’t let these health care expenses catch you off guard in retirement.

8 Things You Should Always Buy on Amazon
8 Things You Should Always Buy on Amazon

The giant retailer shines when it comes to these things, from basics to hard-to-find specialty goods.

Beware This Hidden Ingredient in Rotisserie Chicken
Beware This Hidden Ingredient in Rotisserie Chicken

Something foul may lurk in those delicious, ready-to-eat birds.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

5 Ways to Fill Your Pantry With Free Food
5 Ways to Fill Your Pantry With Free Food

Anyone can take advantage of these resources.

Never Buy These 10 Things on Amazon
Never Buy These 10 Things on Amazon

Just because you can purchase something on Amazon doesn’t mean that you should.

7 Big Purchases You Should Never Make
7 Big Purchases You Should Never Make

Sometimes a big-ticket purchase is nothing more than a big waste of money.

5 States With the Worst Health Care for Retirees
5 States With the Worst Health Care for Retirees

All of these states are located in the same region of the nation.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

5 Products You Should Never Buy Generic
5 Products You Should Never Buy Generic

Sometimes the brand-name version is clearly superior.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.