Where to Buy: Price-to-Rent Ratio in 76 US Cities

Original Article

Price, Rent, BUY, COMPETEREA, EXP, NANA SMITH

The price-to-rent ratio is a measure of the relative affordability of renting and buying in a given housing market. It is calculated as the ratio of home prices to annual rental rates. So, for example, in a real estate market where, on average, a home worth $200,000 could rent for $1000 a month, the price-rent ratio is 16.67. That’s determined using the formula: $200,000 ÷ (12 x $1,000).

Price-to-Rent Ratio by City

Using U.S. Census data, SmartAsset calculated the price-to-rent ratio in every U.S. city with a population over 250,000. Applying that ratio, we also calculated a projected average home price for a house or apartment that rents for $1,000 in each market.

Note that actual home values will vary based on factors such as proximity to commercial centers, access to transit and home size—rentals tend to be smaller (and therefore less expensive) than for-sale properties, so these values may overestimate true market prices.

Renting vs. Buying

The cities with the highest price-to-rent ratios are San Francisco, Honolulu and New York City, which means that they are least friendly to buyers. San Fran’s price-rent ratio of 45.02 is reflective of a market that is highly unfavorable to buyers, although with rents soaring that may soon change.

In NYC, an apartment that rents for $1,000 should cost around $433,920. That, however, represents the entire market—all five boroughs. In Manhattan and Brooklyn, the numbers look even worse. Here are the price-to-rent ratios for the five New York boroughs individually (prices for $1,000 rental in parenthesis):

Manhattan – 49.98 ($599,760)

Brooklyn – 42.31 ($507,720)

Queens – 30.05 ($360,600)

The Bronx – 32.54 ($390,480)

Staten Island – 35.83 ($429,960)

Based on its ratio of rental costs to home values, Manhattan is probably the most expensive place to buy a home in the country. At the other end of the spectrum are places like Houston, San Antonio and Dallas. These Texan markets are very favorable to home-buyers, with ratios below the national average price-to-rent ratio of 18.92.

The city with the lowest ratio in the United States is Detroit, with a price-to-rent ratio of 5.60. That means that a $1,000 rental in Detroit should sell for just $67,200. Indeed, Wayne County, in which Detroit is located, is the best county for buyers in Michigan.

Historical Price-to-Rent Ratio

National and city price-to-rent ratios have risen and fallen over the years depending on the state of the housing market. In the years before the housing crisis, as the housing market heated up, the national ratio rose from 22.73 (in 2005) to 24.50 (in 2007). Then, however, after the real estate market turned, as home prices fell and rentals grew more expensive, the ratio began to fall, dipping below 20 in 2011, down to the current rate of 18.92.

Before the housing bubble and subsequent crisis, the average hovered somewhere around 15. That indicates that we are still in a time period that is more favorable to renters than buyers from a historical perspective.

What Price-to-Rent Ratio Says About Affordability

While the price-to-rent ratio is useful for comparing buying to renting, it does not reflect the overall affordability of buying or renting in a given market. In theory, a place where renting and buying are very expensive could have the same price-to-rent ratio as a place where both renting and buying are very cheap.

Take San Francisco for example. San Fran has the highest price-to-rent ratio in the country, which indicates that renting should be more affordable than buying in the City by the Bay. However, as we all know, rentals in San Francisco are very expensive. The city’s high price-rent ratio is only reflective of the fact that buying is relatively more expensive than renting. It does not saying anything about absolute affordability of either buying or renting in that city.

PRICE-TO-RENT RATIO
City Price-to-Rent
Ratio
Home Price
(for a $1,000 Rental)
San Francisco, California 45.02 $540,240
Honolulu, Hawaii 40.2 $482,400
New York, New York 36.16 $433,920
Oakland, California 35.73 $428,760
Los Angeles, California 34.69 $416,280
San Jose, California 34.56 $414,720
Seattle, Washington 33.47 $401,640
Long Beach, California 32.62 $391,440
Washington, D.C. 32.09 $385,080
San Diego, California 29.52 $354,240
Portland, Oregon 28.7 $344,400
Anaheim, California 28.55 $342,600
Boston, Massachusetts 27.56 $330,720
Denver, Colorado 26.46 $317,520
Chula Vista, California 26.02 $312,240
Jersey City, New Jersey 24.75 $297,000
Santa Ana, California 23.97 $287,640
Austin, Texas 22.67 $272,040
Anchorage, Alaska 22.51 $270,120
Colorado Springs, Colorado 22.02 $264,240
Raleigh, North Carolina 21.83 $261,960
Miami, Florida 21.76 $261,120
Lexington, Kentucky 21.67 $260,040
Albuquerque, New Mexico 21.53 $258,360
Sacramento, California 21.42 $257,040
Atlanta, Georgia 21.35 $256,200
Chicago, Illinois 21.07 $252,840
Minneapolis, Minnesota 21.06 $252,720
Newark, New Jersey 20.85 $250,200
Greensboro, North Carolina 20.44 $245,280
Virginia Beach, Virginia 20.38 $244,560
Lincoln, Nebraska 20.11 $241,320
Louisville, Kentucky 20.08 $240,960
Riverside, California 20.07 $240,840
New Orleans, Louisiana 19.97 $239,640
Bakersfield, California 19.95 $239,400
Plano, Texas 19.46 $233,520
Fresno, California 19.32 $231,840
Nashville, Tennessee 19.32 $231,840
Oklahoma City, Oklahoma 19.17 $230,040
St. Paul, Minnesota 18.93 $227,160
Phoenix, Arizona 18.71 $224,520
Cincinnati, Ohio 18.68 $224,160
Mesa, Arizona 18.15 $217,800
Henderson, Nevada 18.15 $217,800
Charlotte, North Carolina 18.12 $217,440
Wichita, Kansas 17.77 $213,240
Omaha, Nebraska 17.61 $211,320
Aurora, Colorado 17.32 $207,840
Stockton, California 17.26 $207,120
Tulsa, Oklahoma 17.19 $206,280
Kansas City, Missouri 16.92 $203,040
Las Vegas, Nevada 16.4 $196,800
Tucson, Arizona 16.24 $194,880
Baltimore, Maryland 16.15 $193,800
St. Louis, Missouri 16.09 $193,080
Columbus, Ohio 15.76 $189,120
Arlington, Texas 15.72 $188,640
Tampa, Florida 15.63 $187,560
Indianapolis, Indiana 15.3 $183,600
Fort Wayne, Indiana 15.29 $183,480
Philadelphia, Pennsylvania 15.28 $183,360
Dallas, Texas 14.97 $179,640
Houston, Texas 14.77 $177,240
El Paso, Texas 14.71 $176,520
Milwaukee, Wisconsin 14.49 $173,880
Fort Worth, Texas 14.18 $170,160
Jacksonville, Florida 14.06 $168,720
San Antonio, Texas 13.96 $167,520
Corpus Christi, Texas 13.09 $157,080
Toledo, Ohio 12.56 $150,720
Pittsburgh, Pennsylvania 12.19 $146,280
Memphis, Tennessee 12.06 $144,720
Cleveland, Ohio 10.97 $131,640
Buffalo, New York 10.73 $128,760
Detroit, Michigan 5.6 $67,200

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Below is another link with detailed breakdown on:

Reverse Mortgage Guides

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And of course this always is a good idea to seek legal advice.

You  also may want to appraise your house first so you know where market stands for you.

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203-858-6727

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