Curve

Stuck in the rent vs buy dilemma? Consider the local price-to-rent ratio

Aly J. Yale
The Mortgage Reports contributor

Price-to-rent answers affordability questions

If you’re debating whether to rent or buy, look to your local price-to-rent ratio for guidance. A recent analysis revealed which of the nation’s housing markets boast the lowest ratios — thus favoring buying over renting — as well as the spots where renting might be more affordable in the long run.

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Where buying a home’s more affordable

According to a new analysis from Rentberry, Trenton, New Jersey, boasts the nation’s lowest price-to-rent ratio, making it a slam-dunk for potential home buyers.

The median property price in Trenton sits at $149,700, while the average monthly rent is $1,500 per month, making Trenton’s rent-to-price ratio 8. Daniela Andreevska, content director at real estate analytics firm Mash Visor, says anything in the 15 and under range means buying a home is more affordable than renting.

“For renters and homebuyers, this means that it is relatively cheaper to buy a property in a certain market rather than to rent there,” Andreevska said. “So, if you have the necessary cash for a down payment and have figured out the rest of your financing in such a market, go ahead and buy a home.”

Rent prices keep rising — especially on lower-end properties

Other cities with low price-to-rent ratios include Toledo, Dayton and Akron, Ohio; Syracuse, New York; Davenport, Iowa; Hartford, Connecticut, Cedar Rapids, Iowa; and Lansing, Michigan.

“In most of these locations, the median property price does not exceed $250,000, which is below the level in many other top markets at the moment,” Andreevska said.

Average rents hit an all-time high — even in small towns

Where renting might be a better choice

New York City came in with the nation’s highest price-to-rent ratio at 34. Home prices in the area average $1.4 million, while the average monthly rent is $2,780.

Other cities with high ratios — indicating it’s likely more affordable to rent than buy there — include Honolulu; El Paso, Texas; San Francisco, Irvine, San Diego and Los Angeles, California; Boston; Phoenix; and Fort Lauderdale, Florida.

“Some of these cities are infamous for the high real estate prices there, such as San Francisco, New York, El Paso, and Irvine,” Andreevska said. “You have to spend over a million (or even a million and a half) dollars in order to buy an average property there, and that’s not the kind of money most of us can afford for housing. In such expensive markets, it makes sense that renting is the better option or even the only affordable one.”

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Looking to buy a home in one of the nations low price-to-rent markets? Then shop around and see what mortgage rates you qualify for today.