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When It's Better to Buy than Rent
By Diana Holden
One of the biggest lessons of the recent housing collapse is that not everyone can afford to own a home. Too many people were suckered into mortgages with zero down-payments only to be hit later by usurious interest rates. But in some markets, homeownership has become surprisingly affordable—without having to resort to smoke-and-mirror mortgages. The reason is that in these cities the annual average cost to own a home has fallen to little more—and in some cases less—than the cost of renting. Where are these places? Read on to find out.
Editor's Note: The metro areas were ranked based on the annual cost of owning compared to renting. The own/rent ratio represents the annual cost of owning as a percentage of the annual cost of renting. The lower the ratio, the more favorable owning is over renting and in any metro with a ratio below 100%, it's cheaper to own than rent. To make a fair comparison between owning and renting, annual ownership costs were calculated based on a loan of 100% of the purchase price. (Of course, a down-payment is required for most purchases, but including it in our calculations would have skewed the results by lowering the cost of ownership). We also factored in tax rebates assuming an annual income tax rate of 30%. The ownership costs were calculated using a 30-year fixed mortgage with an interest rate of 5.5% and maintenance fees and property taxes were assumed to be about 3%. The second-quarter rental data, which was provided by REIS, is a blended average of all rental types and includes rent concessions. The second-quarter home value data comes from Zillow.com.
Source: REIS and Zillow.com
