Terrific chart porn from Trulia on the question of whether its cheaper to Buy vs Rent. The answer, like so much in RE, is it depends upon the location:

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click for interactive graphic

Category: Digital Media, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

7 Responses to “Buy vs Rent”

  1. smiddywesson says:

    I was surprised by this chart. But then I considered that you got it from Trulia.

    By it’s own description “Trulia is also a tool for real estate professionals to market their listings, view real estate data and promote their services.”

    Therefore, it is funded by the industry that sells homes to people. I thought the conflict of interest of the ratings agencies, and the horric results, had taught us all a lesson about accepting investing information from people with a conflict of interest.

    Do any of us really believe that only NYC and a small piece of Texas are the only bad places to invest in the country? I mean, really? Chuckle, chuckle. That one doesn’t even pass the smile test.

    Even if the chart were reliable, the suggestion that owning might be a better deal at this one point in time says nothing about whether you should jump into a 20 year investment. I would think twice about buying anything right now, and then jettison the idea completely.

  2. smiddywesson says:

    Jesse Livermore said prices are never too high to buy, or too low to sell. Having lost millions failing to do so, he also had quite a bit to say about waiting for price confirmation before shorting or picking up bargains. The real estate industry is showing no indication of improving. Where’s our confirmation of a bottom?

    Potential buyers know interest rates are going nowhere until the Fed runs out of room with the dollar and the other fiat currencies force Bernanke to make a move and raise rates. Why pick up bargains when you can sit on your hands and get a better deal later? All the risk is to the downside.

  3. BPLipschitz says:

    When looking at charts, I often start with the basics: “does it make sense?” The “Dallas” blot appears to be directly over St. Louis.

    Fail.

    Also, does anyone else see the irony in the data being reported in what appear to be bubbles?

  4. smpeterson says:

    Yes, I can buy a house for under $100k in Phoenix… but I wouldn’t want to live there. Didn’t we learn a lesson recently about treating real estate as purely an investment? I know I’m better off paying more renting a house I’m happy to come home to at night in a neighborhood that I enjoy than buying a $75k foreclosure in the ghost-town exurbia.

  5. Tezzer says:

    $200K for a house in San Jose? Hah. And “Probably better to buy” in San Francisco right now? Who are these people?

  6. rootless says:

    For the ones who care about the New York City data:

    The data for New York City are not consistent with what one can derive using streeteasy.com where there it is possible to see the median prices and sizes for the boroughs or the individual neighborhoods and type of bedrooms in more details.

    The Trulia list price of 1.6-1.7 M$ for a 2 bedroom is obviously the one for condos for Manhattan. This about agrees with the streeteasy data for 2 bedroom condos. Using all types of properties instead, i.e. mainly adding all the many co-ops, the median sales price for 2 bedrooms is about 1.25 M$.

    However, the median rental price of $3500 for a 2 bedroom is the median rental price for all New York City on streeteasy. The Manhattan median rental price is $4500 for 2 bedrooms of all types of properties. Also, the median size of 2 bedroom apartments listed for sales is 1250 sqft., the median size of the ones listed for rent is 1200 sqft., i.e., there is some bias to higher price-rent ratios, when median prices are used. It’s better to use the ratio of the square foot prices. So using the square foot prices using the streeteasy data above for all properties, the price-rent ratio is about 22-23 for Manhattan. If one uses the median square foot price for rental apartments provided by streeteasy (many rentals don’t list the sizes, therefore a discrepancy), instead, the price rent ratio is about 18-19. I prefer to do these calculations for individual buildings where there are apartments for sale and for rent. Usually, I have calculated price-rent ratios somewhat below or around 20. This seems to be the more realistic number for Manhattan compared to what the Trulia tool says.

    One also has to take into consideration that the list prices are not necessarily the ones for which the apartments are selling. The ones which are overpriced will be the ones hanging around the longest, whereas the ones priced well relative to where the market is at the current time, will go fastest. So there is also a bias to higher price-rent ratio, particularly in markets where the sellers are still more delusional on average regarding what they can get for their properties.

    The price-rent ratios for the other boroughs of New York City are about the same or lower, using the streeteasy 2-bedroom square foot prices:

    Brooklyn: 16-17
    Queens: 18-19
    Bronx: 11-12
    Staten Island: 15-16

    It’s still quite difficult to find a place in New York City, which is not very overpriced relative to rent or income, even though rental prices are quite high, too, particularly in Manhattan. The post-bubble adjustment process has progressed most in the Bronx. Buying in Manhattan south of Harlem is for the wealthy. Who can afford a 2-bedroom condo for 1.6 M$? Who are the ones with a household income of 400 k$ a year?

  7. [...] Sell your home and rent something that better fits your needs, such a place with less square footage or one that’s part of a senior community. You can use a buy vs. rent calculator to analyze this possibility; these calculators compare all housing costs when either buying or renting, including the best use of the assets you’d apply for a down payment on a house, and your expectations for rent increases and home appreciation. To analyze this solution as a retiree who currently owns a home, estimate the amount of money you’d realize from selling your house, after subtracting selling costs, and use that as the theoretical down payment on a smaller, downsized house. Then compare that option to the cost of renting a home or apartment. A simpler approach would be to just compare your annual cash flow now to the cost of renting; in this case, be sure to include the retirement income that might be generated by the home equity that you realize. Of course, the feasibility of this solution depends on that old real estate adage — location, location, location — as indicated by this creative buy vs. rent map. [...]