May 24, 2024

Economix: Rent vs. Buy, a Longer List

My column this week revisits the question of whether to buy a home or rent one. In the newspaper, we included a chart showing average rent ratios — the purchase price of a house divided by the annual rent of a similar house — for several metropolitan areas. Here, we include a longer list.

As a rule of thumb, when the ratio is below 15, people should lean toward buying a home. When it’s above 20, they should lean toward renting. When it’s in between, the decision should be based almost entirely on stage of life: Are you ready to settle into a home for at least five years, if not more. As I note in the column, your stage of life should often dictate your decision even when ratios are below 15 or above 20.

For the following metro areas, Moody’s Analytics, which provided us with the data, had numbers going back to 1986:


For the following metro areas, the data goes back to only 1990:

A comparison that includes the 1980s is a better one, because the 1980s was a decade when real estate boomed in many places while the 1990s was a decade in which some places, like California and New England, experienced a bust. The ideal long-term comparison includes both bull and bear markets.

For this reason, I would expect the 1990-2000 average, which appears with the charts in the newspaper, to be lower than the long-term average. We went with 1990-2000 so we could include areas for which the data begins in 1990.

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