Real estate search engine website, Trulia, has just released their Rent vs. Buy Index for Q2 2011 for the Nation’s 50 largest cities. According to the report it is cheaper to buy a home than to rent one in 39 of those cities.
Although Reno, Nevada was not one of the cities analyzed, Las Vegas was and ranked in the top spot as the city with the lowest rent vs. buy index – indicating most affordable to buy rather than rent. Reno probably isn’t far behind.
Click here to see the indices for the nations 50 largest cities as well as a cool interactive map.
Click here to see Trulia’s methodology for calculating its Rent vs. Buy Index.
Zen
Overall, Trulia’s assessment methodology looks fairly sound, but I would hope anyone looking at their data takes into account that they are not including the cost of upkeep. Things break and/or get worn out. If you have a larger family or lots of people in your home on a regular basis, they wear out faster and break more often. These things in a house can cost thousands and thousands of dollars and/or lots of your time to fix when you least expect it. If you’ve ever owned a home, I’m sure I’m just preaching to the choir, but if not, it is something you seriously want to consider and be prepared for. I purchased my first home under similar circumstances and in the long run it turned out to be a good move, so I am glad to see that this opportunity has arisen again. It was getting so crazy a few years ago. Young families were literally mortgaging their futures to put a roof over their head, afraid that if they didn’t act right away, they would never be able to buy into a home. While the real estate mess has caused a lot of pain, this is the silver lining. Homes should be affordable without making you a slave to it. I think all this has also helped people to realize that the word “RENT” is really not a proverbial four-letter word. Owning a home is often not a good idea.
GratefulD_420
“Reno probably isn’t far behind.”
Very true. In today’s Reno market it would be hard to find a rental of equal qualities and amenities for less monthly costs than it would be to own/buy. In my personal estimation it has been this way for 1+ years or so.
The above statement and the Trulia valuation is an accurate account….. if the market is not in decline. The model takes no account of price depreciation (or appreciation!) at all. So for instance…. if you are looking at a house in the $200 k range or rental of $1,400+ and you figure in depreciation of 5% in one year… you have to add another $10 k/yr or $833 / month to the mix.
What did the Reno market decline over the last year?
So I think the model is good but personally I would try to factor in the market if we KNOW with a high certainty where the market is headed. A good thing to remember about the housing market is it is Sloooooow [this is why (b)bears go hibernate]. If you look at the leading market indicators (inventory YOY, absorption rate, affordibility, unemployment, local & national economy, % distressed sales, % underwater, backlogged foreclosure, backlogged NOD, NOS, TD’s, etc.) you will see it coming well before it ever happens. Sorry but it’s not the stock market… where RE agents love to make the analogy… the bottom is gone before you knew it was ever here! The truth is it’s more like watching paint dry (@10C and no wind!).
signed,
just a guy wanting to buy
since 2005.
p.s. Of course if your aren’t paying a major portion in cash, then you also have to consider interest rates which can weight very heavy and turn on a dime with a great many factors determining the outcome.
Norton
“What did the Reno market decline over the last year?”
About 8.5%.
Move to Reno
5% depreciation on a house is too high in my opinion. Figure a new roof every 25 years and a new heat/air unit every 20. A new hot water heater every 10 years. Figure replacing appliances every 15 years.
Those items don’t cost $250,000.
longerwalk
My Dad (that savvy old guy–I do miss him) said to figure on spending 10% of the home’s cost after moving in to get it the way you wanted it, and 5% a year thereafter. If you PLAN on these, you won’t be disturbed when you need a new roof the same year the furnace dies. As with most other things, having a rainy day fund makes it easier to deal with the ebb and flow of homeownership.
Move to Reno
I built a house 19 years ago. I’ve replaced the heat/air unit for $7500 and the hot water heater for $350. I’ve painted the house several times but did the work myself so figure about $2500 for the paint and paint sprayer. Also replaced the 3 bath room sinks, that another $250. replace flooring in kitchen ……..that’s $300. $800 for the range, $1200 for the refrig. the dishwater $450.
MikeZ
they are not including the cost of upkeep. Things break and/or get worn out.
Good point.
Many years ago I was quoted 1-2% per year for maintenance. That figure seemed high at the time but in the end it was pretty accurate.
My experience was I’d go years with only minor expenses (well under 1% per year), then, suddenly, you need a roof, or a new driveway, or windows, or a new retaining wall, or A/C, etc.
billddrummer
The comments about maintenance are correct. When I owned a house, I painted, landscaped, and did minor electrical and plumbing work myself because I didn’t have a ‘rainy day fund.’
I didn’t have a rainy day fund because my mortgage payment was too high.
Now, I rent, and don’t have either worry.
And my rent has decreased over the past two years.
How many lenders have reduced their mortgages?
GratefulD_420
Very valid points by all about “depreciation.”
.. of course I wasn’t talking about “upkeep” costs. I was talking about buying into a known depreciating asset due to market value.
… so I guess if you add both upkeep and market depreciation the results of the study may be a touch different.