This Number Will Tell You Whether It’s Better to Buy or Rent

buy or rent a home
Photo by Aysezgicmeli / Shutterstock.com

If you live in California and are thinking of buying a home, you might want to look before you leap: In much of the Golden State, renting is probably better for your budget.

Out of the 20 large cities with the highest price-to-rent ratios in the U.S., 15 are in California, according to a recent analysis by life insurance company Haven Life. Technically, this means you’re better off renting than buying a home in those cities.

The price-to-rent ratio is a comparison of home prices to rents in a given location. As such, it’s a key measure to consider when weighing whether to own or rent a home.

Cities with the highest and lowest price-to-rent ratios

For its analysis, Haven Life evaluated the 200 most populous cities in the U.S. based on price-to-rent ratios from real estate website Zillow.

The city of Sunnyvale, California, has the highest price-to-rent ratio of the 200 cities: 39.31. For context, Haven Life considers a price-to-rent ratio of more than 16 to typically indicate that renting is better than buying.

The median monthly mortgage payment in Sunnyvale is $5,595, while the median rent for a two-bedroom home is $3,741.

The city of Fremont, California, follows Sunnyvale with a price-to-rent ratio of 27.24.

At the other end of the spectrum is Cleveland, Ohio, with a price-to-rent ratio of 6.04. So, buying is the much better option in that city, at least based on the ratio alone.

The median monthly mortgage payment in Cleveland is a mere $282. The median rent for a two-bedroom home, on the other hand, is more than twice as expensive as a mortgage payment at $825.

Syracuse, New York, follows Cleveland with a price-to-rent ratio of 6.21.

What it means for you

The price-to-rent ratio is hardly the only factor to consider when weighing where to live or whether to buy or rent a home there. Nonetheless, you should consider it carefully when trying to answer the million-dollar question of buying versus renting.

Haven Life describes the price-to-rent ratio as “one of the biggest drivers of how long it takes to break even on a house.”

You can find price-to-rent calculators online. Zillow and Trulia, for example, offer calculators that help you determine whether to buy or rent based on:

  • Your location
  • How much you would be willing to spend on a home
  • How much money you could put down on a home
  • How much you would be willing to spend on rent

What’s your take on buying versus renting a home in today’s market? Share your thoughts below or on Facebook.

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