Have you ever debated the merits of owning versus renting? Instead of just guessing about when the real estate market will shift enough to make owning the most financially rewarding move, there is actually a calculation that can be done. The price-rent ratio = price of house/annual rent. It measures how much the buyer is paying for each dollar of rental income received (or dollar saved from rent spending). In other words, if you get a price-rent ratio of 15, that means that the house is 15 times more expensive to buy than the annual rent that will be received from it.
During the real estate bubble from 2005 - 2007, the price-rent ratio increased to more than 20 times in some areas. Generally, renting is preferable if the price-rent ratio is greater than 20, whereas buying is better if the ratio is less than 15.
Moody’s chief economist Mark Zandi now says that owning is about to become the way to go. “By mid-2011 and certainly by end of 2011, buying will be superior to renting in most parts of the country,” Zandi says. Home prices have fallen, making homes more affordable, whereas rents are expected to continue to rise this year.
Below are the top cities where it makes more sense to buy than rent, according to the Moody's data.
• Cleveland: 11.43
• Pittsburgh, Pa.: 11.71
• Detroit: 12.32
• Phoenix: 12.35
• Atlanta: 12.82
• Tampa, Fla.: 13.08
• Orlando, Fla.: 13.1
• Cincinnati: 13.74
• Las Vegas: 13.89
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