Archive for August 25th, 2009

Why Rent When You Can Buy? America’s cheapest homeowership markets

Tuesday, August 25th, 2009

In 20 metro areas around the U.S., the cost of buying a home is only a little more — and in two metros actually less — than renting

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Pittsburgh renters can actually lower their monthly expenses by buying a home.

Home prices have dropped so much that the cost to own and maintain a house in many metros is only a bit more, and sometimes even less, than the cost of renting. teamed up with research firm Reis to rank 20 metros where it’s almost as cheap to buy as it is to rent. (Reis made the calculations using its own second-quarter rent data and second-quarter home value data from We found two metros, Detroit and Pittsburgh, where renters can actually lower their monthly expenses by buying. The rest of the list, featuring metros where buying was only slightly more expensive, included Rochester, N.Y.; Memphis; Tampa; Cleveland; Columbia, S.C.; Dallas; Las Vegas; and Providence.

To create a fair matchup between owning and renting, we calculated ownership costs assuming a fixed 30-year loan for 100% of the purchase price with no down payment. If we had instead decided to factor in a 20% down payment, owning would have been the cheaper option for the top 10 metros on our list.

“It’s a great time to buy,” says Mollie Carmichael, senior vice-president of John Burns Real Estate Consulting in Irvine, Calif. “If you can own a home for less than the cost to rent, then it’s a logical financial proposition.”

An Opportunity for New Buyers

The housing slump has brought the own-vs.-rent equation closer to where it was before the housing bubble drove sales prices way above rental costs. (Rents are also falling now, but at a much slower pace.)

The foreclosure crisis has trampled down prices from Tampa to Riverside, Calif. And low interest rates and government incentives such as the $8,000 first-time home buyer federal tax credit, which expires this year, is attracting new buyers previously priced out of the market. The American dream is getting more affordable. In Tampa, for example, owning was 15% more expensive than renting in the second quarter. But it was 46% more expensive than renting a year earlier.

Greg Ghodsi, senior vice-president at Raymond James in Tampa, says buying a principal residence in Florida now makes more sense than it did during the housing boom.

“If you have a job and are looking for a primary residence, you can get places here in Tampa that aren’t cheap, but relative to where they were, are fairly priced compared to renting … The whole equation has changed,” Ghodsi says.

Be Prepared to Stay a While

Of course, different people have different notions of what cheap means and buying isn’t an option for everybody. Many renters are now losing jobs and banks are raising standards for mortgages. And the housing market still poses significant risks as prices continue to fall and foreclosures rise. Stan Humphries, chief economist at, says prices are likely to continue to fall and then begin to appreciate slowly, so buyers should plan to stay put for a minimum of five to eight years or risk making a loss.

“It’s a fool’s errand to try to time the bottom for both economists—and buyers and sellers,” Humphries says. “If you found a house that you love and want to be in for a long period of time, now is potentially a good time to wade into the market.”

But with the first-time home buyer tax credit expiring and the possibility that interest rates will start rising, it might pay to act quickly, says Victor Calanog, director of research for Reis. But rents are dropping, too, so tenants might also be able to cut monthly expenses by seeking out apartments with lower rents or concessions, he says.

“This might be the time to seriously evaluate the decision of whether to rent or own,” Calanog says.

When It’s Better to Buy Than Rent

1. Detroit Metro (Mich.)
Own/rent ratio: 94%
Annual cost to own: $8,519
Annual cost to rent: $9,072

Detroit is best known as the home of the Big Three automakers: General Motors, Ford, and Chrysler. The city has been hard-hit by the recession because of its dependence on the struggling auto industry. Detroit was the 11th largest metropolitan area as of 2007, with a population of nearly 4.5 million. It had and unemployment rate of 17.1% in June, the worst of any metropolitan area with a population over one million.

2. Pittsburgh Metro (Penn.)
Own/rent ratio: 97%
Annual cost to own: $8,947
Annual cost to rent: $9,252

The Pittsburgh area, located on the west side of the state, has a population of about 2.3 million. This former steel town now has large employment in the education and health-care industries. Heinz and United States Steel have headquarters there. The area has escaped the worst of the recession and had a 7.7% unemployment rate in June.

3. Rochester Metro (N.Y.)
Own/rent ratio: 113%
Annual cost to own: $9,523
Annual cost to rent: $8,448

Located near Lake Ontario, the Rochester metropolitan area has a population of more than 1 million. Rochester is home to Eastman Kodak and the University of Rochester. The Rochester unemployment rate was 8.4% in June, not seasonally adjusted. In the first half of this year, one in every 276 houses received a foreclosure notice in the Rochester area, according to RealtyTrac.

4. Memphis Metro (Tenn.-Miss.-Ark.)
Own/rent ratio: 114%
Annual cost to own: $8,593
Annual cost to rent: $7,524

Memphis is located on the Mississippi River and the metropolitan area has a population of more than 1.2 million. The city is known as the birthplace of rock and roll. Elvis’ estate, Graceland, is in the area. FedEx, AutoZone and International Paper are headquartered there. The Memphis area ranked 43rd in the nation in foreclosure notices in the first half of 2009 according to RealtyTrac.

5. Tampa Metro (Fla.)
Own/rent ratio: 115%
Annual cost to own: $10,823
Annual cost to rent: $9,444

South Florida is has been hit hard by the recession, and home prices in Tampa have taken a dive. The metro was the country’s 19th-largest in 2007, with a population of more than 2.7 million. OSI Restaurant Partners and WellCare Health Plans are headquartered there. The Tampa Bay area also relies on the tourism industry.

6. Cleveland Metro (Tenn.)
Own/rent ratio: 119%
Annual cost to own: $9,934
Annual cost to rent: $8,364

Cleveland, Tenn., is located in the southeast corner of Tennessee, near Chattanooga. Major employers include Johnston Coca-Cola Bottling, Whirlpool, and Rubbermaid. With a population of approximately 112,000, the Cleveland area is among the smallest on this list.

7. Dayton Metro (Ohio)
Own/rent ratio: 119%
Annual cost to own: $8,420
Annual cost to rent: $7,056

Home prices and employment in Dayton have both taken a hit in the recession. The unemployment rate in the area was 12.1% in June. The Wright-Patterson Air Force Base is a large employer in the area.

8. Columbia Metro (S.C.)
Own/rent ratio: 123%
Annual cost to own: $9,885
Annual cost to rent: $8,016

Columbia is the state capital and home to the University of South Carolina. The metropolitan area had about 700,000 people as of 2007. The city’s large employers are the state government and University of South Carolina, two industries that are more recession-proof than others, and so it has been spared from the worst of the crisis. However, the unemployment rate still reached 10% in June (not seasonally adjusted).

9. Orlando Metro (Fla.)
Own/rent ratio: 124%
Annual cost to own: $12,107
Annual cost to rent: $9,756

The Orlando metro area, in central Florida, has a population of more than 2 million. Orlando’s economy relies heavily on tourism from Walt Disney World, Universal Studios, and SeaWorld amusement parks. The metro area ranked 10th in foreclosure notices in the first half of 2009, according to RealtyTrac. It had an unemployment rate of 10.8% in June, not seasonally adjusted.

10. Dallas-Fort Worth Metro (Texas)
Own/rent ratio: 124%
Annual cost to own: $11,037
Annual cost to rent: $8,880

Home sales in the Dallas-Fort Worth area were flat in the second quarter of 2009 after several declines, according to the National Association of Realtors. Mortgage rates are low, making this a good time for home buyers. The Dallas-Forth Worth region was the fourth-largest metropolitan area in 2007 and the largest city on this list. It had a June unemployment rate of 8.2%. American Airlines and ExxonMobil are headquartered in the area.

Click here to see the full list.