Trulia's quarterly Buy vs. Rent Index was published today, and the overall findings favor homebuyers. In case you were wondering, the index is calculated by dividing a city's median list price by its median rent cost. The higher the index number, the cheaper it is to rent, and vice versa. Some of the findings may surprise you. In 74% of the nation's 50 largest cities, buying is cheaper than renting. Interestingly enough, Nashville and Atlanta have mirrored each other over the past year with the same index values. Their current indexes stand at 14, with the range of values stretching from 6 to 36. That's an increase from 12 in April 2011, but still solidly in the "cheaper to buy" category.
Keep in mind, the index only takes into account the prices of two bedroom apartments, townhomes, and condos, not single family homes.
Generally, the best cities for buying over renting are those drowning in foreclosures. Think Las Vegas, Detroit, and Phoenix. So the fact that Nashville and Atlanta sit closer to the middle is somewhat reassuring, in a glass-half-full kind of way. The top cities for renters include some obvious ones and a few surprises. Of course New York, San Francisco, and Seattle are places where renting makes more financial sense. But the middle of the country also shows some rental love, with Omaha, Fort Worth, and Kansas City, Missouri rounding out the top six. Who knew?
While the index is a good place to start, other important factors should go into your rent vs. buy decision. Major questions to ponder are:
- How long you do plan to stay in the area?
- Have you saved enough for a down payment and closing costs?
- Are you ready to pay for all the other costs of homeownership, like maintenance and property tax?
- Could potential tax advantages benefit you?