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

This key measure can help you decide whether renting or buying makes more financial sense in your town.

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

Karla Bowsher
Karla Bowsher
I’m a freelance journalist and former newspaper reporter who has covered both personal and public finance. I've worked for a top 50 major metro daily and a community newspaper as well as ... More

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