Buy vs. Rent: An Update

[tobee43]

December 22, 2010


Buy vs. Rent: An Update


Below is an updated list of rent ratios — the price of a typical home divided by the annual cost of renting that home — for 55 metropolitan areas across the country.

We last covered this subject about eight months ago, and you’ll notice that most ratios have not changed much since then. A good rule of thumb is that you should often buy when the ratio is below 15 and rent when the ratio is above 20. If it’s between 15 and 20, lean toward renting — unless you find a home you really like and expect to stay there for many years.

Metro area Ratio
East Bay, Calif. 35.9
Honolulu 34.4
San Jose, Calif. 32.7
San Francisco 27.9
Seattle 27.3
Charlotte, N.C. 27
Orange County, Calif. 27
New York (Manhattan) 26.7
Raleigh, N.C. 26.2
Portland, Ore. 25.9
North – Central New Jersey 25.2
Nashville 24
Denver 22.6
San Diego 22.1
Long Island, N.Y. 21.4
Milwaukee 21.4
Austin, Tex. 20.5
Norfolk, Va. 19.9
Richmond 19.7
Memphis 19.3
Bridgeport, Conn. 18.5
Hartford 18.4
Boston 18.4
Washington – Northern Virginia – Maryland 18.3
Oklahoma City 18.2
Baltimore 17.6
Columbus, Ohio 17.6
Palm Beach County, Fla. 17.6
Salt Lake City 17.6
Sacramento 16.7
San Antonio 16.7
Chicago 16.6
New Orleans 16.2
Philadelphia 16.1
Houston 15.9
Fort Lauderdale, Fla. 15.7
Miami 15.6
New York 15.4
Los Angeles 15.4
Kansas City, Kan. 15.3
Inland Empire, Calif. 15.1
National average for metro areas 15.1
Indianapolis 15.1
Jacksonville, Fla. 15
Minneapolis 14.9
St. Louis 14.6
Las Vegas 14.3
Atlanta 14.3
Orlando, Fla. 14.1
Tampa, Fla. 14
Cincinnati 13.9
Dallas – Fort Worth 13.8
Phoenix 13.3
Detroit 12.4
Cleveland 11.7
Pittsburgh 11.4

It’s pretty amazing when you think about it. The country has suffered through a terrible crash in home prices, yet buying a house remains an iffy proposition in many markets.

The data comes from Mark Zandi of Moody’s Analytics and covers the second quarter of this year. Home prices haven’t changed very much since then, so I would expect ratios in most places to be quite close to the numbers you see here.

http://economix.blogs.nytimes.com/2010/12/22/buy-vs-rent-an-update/

[ryan]

Very interesting. Yeh, there seem to be very few markets below 15 and worth risking a purchase. ....and most markets are above 20 so what must the analyst be fearing?.... that prices in those markets will drop even further?

[tobee43]

Very interesting. Yeh, there seem to be very few markets below 15 and worth risking a purchase. ....and most markets are above 20 so what must the analyst be fearing?.... that prices in those markets will drop even further?

yeah, and was is soooooooooo cool for us...is we are buying this house and closing next month and it's under the 15!! YES!!!

[AbbeyA]

yeah, and was is soooooooooo cool for us...is we are buying this house and closing next month and it's under the 15!! YES!!!

Hi Tobee, congratulations on buying your house! Are you doing a rent-to-own or owner financed mortgage? Just curious how you are doing it, dh and I are talking about ways we can buy the house we are renting in a couple of years (but before our 3 years from foreclosure). Would you mind sharing your story? Thanks!

[tobee43]

Hi Tobee, congratulations on buying your house! Are you doing a rent-to-own or owner financed mortgage? Just curious how you are doing it, dh and I are talking about ways we can buy the house we are renting in a couple of years (but before our 3 years from foreclosure). Would you mind sharing your story? Thanks!

abbey, yes, it's 100% owner financed.....the owner of this house was an absentee owner and had been living in another state but attempting to sell it for about 3 years. he owns it outright...so it made it easier to work with him.

by the way our first house, the one we lived in for 33 years is still NOT foreclosed on....

i had attempted a bit over a year ago to get a rent option to buy....but he still thought he could sell it ...and in the meantime during that year watch this property loss over 80k....an the other houses around it going for almost nothings....so i re0 approached in about 6 months ago...nagging and asking him...LOL!!!! finally in late nov., he said he's really think about it, since at this point he just wanted out. so i sent him a contract early dec. we offered about 30k more than what most of the neighboring houses are going for in the area...(although this one has an inground pool...cage and some extras that the other houses didn't have)....well i spoke with his atty late last week...the contract was accepted and we got the signed contract back!!

we are doing a 15 year straight 5%...we are paying all closing costs, but other than the title company and some other essential charges they are being keep at a minimum....saving us thousands...besides staying completely away from the banks!!! he did agree to use part of last years rent towards our down payment ...so it's a win win i think for both parties...

[AbbeyA]

abbey, yes, it's 100% owner financed.....the owner of this house was an absentee owner and had been living in another state but attempting to sell it for about 3 years. he owns it outright...so it made it easier to work with him.

by the way our first house, the one we lived in for 33 years is still NOT foreclosed on....

i had attempted a bit over a year ago to get a rent option to buy....but he still thought he could sell it ...and in the meantime during that year watch this property loss over 80k....an the other houses around it going for almost nothings....so i re0 approached in about 6 months ago...nagging and asking him...LOL!!!! finally in late nov., he said he's really think about it, since at this point he just wanted out. so i sent him a contract early dec. we offered about 30k more than what most of the neighboring houses are going for in the area...(although this one has an inground pool...cage and some extras that the other houses didn't have)....well i spoke with his atty late last week...the contract was accepted and we got the signed contract back!!

we are doing a 15 year straight 5%...we are paying all closing costs, but other than the title company and some other essential charges they are being keep at a minimum....saving us thousands...besides staying completely away from the banks!!! he did agree to use part of last years rent towards our down payment ...so it's a win win i think for both parties...

That's really awesome, congratulations!!! Did the owner want to have anything written where you will refi with a bank after a set period of time? I am guessing not since you said it is a 15 year note. How great for all of you, he doesn't have to pay realtor fees, he gets a steady stream of income from the home for a long time, you get to own your home and not worry about moving again - I hope we can do something like that in the future.

In our case, the house we are in is owned by two siblings whose mother was the owner. She passed away and the home was vacant for 5 years while they tried to sell it. They have taken wonderful care of the home and done some updates in order to sell it, but the marked went down and now they decided to rent instead since they can't get what they want for it. I believe is owned outright. We moved in in November, so we have only been here a couple of months but we love it. It is close to the elementary school and I can walk the kids there, the home is a perfect size for our family of 6 - not too big and not too small. If we are lucky enough to buy the house, we would like to finish the basement. We will most likely try to negotiate some type of deal with them once we feel we are ready to proceed further. Our lease contract is 2 years, so we may start the discussions with them about 6 months prior to the expiration of the lease. On the other hand, if we want to stay longer after the lease is up without purchasing the home, it will not be a problem to do so.

I am really happy for you, congratulations on everything! : )

[tobee43]

That's really awesome, congratulations!!! Did the owner want to have anything written where you will refi with a bank after a set period of time? I am guessing not since you said it is a 15 year note. How great for all of you, he doesn't have to pay realtor fees, he gets a steady stream of income from the home for a long time, you get to own your home and not worry about moving again - I hope we can do something like that in the future.

In our case, the house we are in is owned by two siblings whose mother was the owner. She passed away and the home was vacant for 5 years while they tried to sell it. They have taken wonderful care of the home and done some updates in order to sell it, but the marked went down and now they decided to rent instead since they can't get what they want for it. I believe is owned outright. We moved in in November, so we have only been here a couple of months but we love it. It is close to the elementary school and I can walk the kids there, the home is a perfect size for our family of 6 - not too big and not too small. If we are lucky enough to buy the house, we would like to finish the basement. We will most likely try to negotiate some type of deal with them once we feel we are ready to proceed further. Our lease contract is 2 years, so we may start the discussions with them about 6 months prior to the expiration of the lease. On the other hand, if we want to stay longer after the lease is up without purchasing the home, it will not be a problem to do so.

I am really happy for you, congratulations on everything! : )

yes, thanks so much...it really is tremendous for us!

no, we don't have to refin... and i wouldn't want to with the 5%. we did have to "borrow" some bucks from a family member to help it work so we could do the 15 year straight...but it was better than waiting to borrow from a bank, and the price on the house was so low that really it wasn't much of a "personal" loan we had to ask a family member to extend.

right! no closing fees to the bank...no realtor fees.....and he gets even MORE income than he had from the rent...so it was really a win win for both of us!

that would be GREAT if you could work the same type of deal with your landlord....i just was over anxious is anticipation of the housing market going up...although, i'm not thinking that is happening anytime soon, we just felt it was really at the "all" time low right now and a good time to attempt to make the move.

best of luck to you abbey! i'm certain it will work out for you as well...

[Toby629]

So happy for you tobee43! If you can bypass the bank and purchase on a land contract with the owner that works out best for both of you. No money to the corrupt banks, no realtor commissions to pay and no having to jump through hoops and redtape hoping to get approved for a mortgage loan. Best way to go if you can. We purchased our house originally on a land contract deal and plan on going that route again!

[shark66]

My gut feeling is that we'll be seeing more and more deals like this in the years to come...since the housing crisis is nowhere near done, at least not in my opinion...

It's absolutely amazing to me that people would attempt to sell a house for a few years, with no hope in sight, yet stubbornly refuse to rent or go for lease-to-own option...just
blows my mind and I've got plenty of such owners around me...

I wish you the very best of luck, tobee...may you stay in the new place at least as long as you did in the old one...

[tobee43]

So happy for you tobee43! If you can bypass the bank and purchase on a land contract with the owner that works out best for both of you. No money to the corrupt banks, no realtor commissions to pay and no having to jump through hoops and redtape hoping to get approved for a mortgage loan. Best way to go if you can. We purchased our house originally on a land contract deal and plan on going that route again!

thanks so much toby for you well wishes.

yes, bypass those crooked, terrible, money hungry, greedy banks.....

land contract deals many people don't know what they are....and they are a sure target for future buyers...at least i think so.... just wrap around someone's mortgage....absolutely...a way around the system. my daughter did it with her house NOW....since she moved out of state and could not, (of course) sell her place.

i know it does get a bit confusing.....so here's some general info if anyone wants:

"Land contracts were very popular in the late 1970s and early 1980s. Back then, installment sale contracts, sometimes called contracts for deed, offered more attractive financing terms over the higher rates and rigid qualification standards of institutional lenders.
Land contracts began to disappear when loan requirements softened and rates dropped below 8%. But they have not vanished all together and, in fact, tiptoed back into the market in 2006."

What is an Installment Sale Land Contract?

Land contracts or contracts for deed are a security agreement between a seller, called a Vendor, and a buyer, called a Vendee.

The Vendor agrees to sell a property by financing the purchase for the Vendee.

The Vendor retains legal title and the Vendee receives equitable title.

The owner-carried financing can include an existing mortgage balance or the property can be free and clear.

Upon payment in full, the Vendor hands the Vendee a deed to the property.
All-Inclusive (Wrap-Around) Land Contracts

Wrap-around contracts contain an existing mortgage.

The Vendee makes one payment to the Vendor.

Upon receipt of the payment, the Vendor pays the underlying lender's payment and keeps the rest.

If the existing mortgage has a lower interest rate than the rate on the contract, the Vendor earns extra interest on money that does not belong to the Vendor.
This is how it works.

1.Say the sales price is $100,000.
2.The Vendee puts down $10,000.
3.The Vendee agrees to make payments on $90,000, bearing interest at 6.5%, payable $567.
4.The existing underlying loan is $50,000, payable at 5% interest with a payment of $268.
The Vendor earns 6.5% interest on $40,000 of equity, PLUS 1.5% interest on the existing mortgage of $50,000 and pockets $299 a month."

i just did a quick look up just so some that may not know what a land contract is has a "clearer" view of it....

they work..and i believe they are coming back!!!!

[tobee43]

My gut feeling is that we'll be seeing more and more deals like this in the years to come...since the housing crisis is nowhere near done, at least not in my opinion...

It's absolutely amazing to me that people would attempt to sell a house for a few years, with no hope in sight, yet stubbornly refuse to rent or go for lease-to-own option...just
blows my mind and I've got plenty of such owners around me...

I wish you the very best of luck, tobee...may you stay in the new place at least as long as you did in the old one...

i'm with you on that shark66...in our case we were extremely fortunate...the owner owned the land out right...so the deal was and is clean and simple...

thanks so much for wishing us luck......(as i look outside and see all the work that needs to get done)...and thinking OH NO...here i go again!! LOL!! but it's ours!

[Toby629]

tobee43 very good description of what a land contract is and how it works, hopefully people will consider this often overlooked option to purchase a home, especially from now on as the bank and lending institutions are really tightening up lending standards.

[tobee43]

tobee43 very good description of what a land contract is and how it works, hopefully people will consider this often overlooked option to purchase a home, especially from now on as the bank and lending institutions are really tightening up lending standards.

thanks toby...hope people know there are actually some other options...

yes, i do hope so, as well. unfortunately, many attempting to buy a house today tend to believe they can ONLY go via a bank loan....

we had to get REALLY creative and also look for the "right" type of property. even when we rented this house, we looked at ...well, i can't even count...but we were looking or thinking at every moment...can this be a house we can rent to buy....and actually, it was pretty tough to find an owner whom actually owned their house...i just didn't want any complications with the wrap around since many times newer or younger owners don't get the concept...i'm NOT saying because they don't understand it, it's just a big scary to many at first. we just didn't want to deal with that...so we waited until i knew this guy was feeling really squeezed and took the opportunity to make an extremely FAIR offer that would benefit both of us in the long run...he was extremely happy to get 30k over what neighboring homes were are are selling for...and we of course were delighted to be able to once again buy...of course it was with a cost...but in the long run we don't think that much.

i guess we will see..

[StartinOver]

So how does the Vendee get protected from losing it all if the Vendor is not responsible with paying the underlying mortgage?

[tobee43]

So how does the Vendee get protected from losing it all if the Vendor is not responsible with paying the underlying mortgage?

well, the one's i have any experience of knowing all were done with tight contract agreements....so there were fall backs in place....for example...statements of account etc. i'm certain there are different ways to do it.

however, it is exactly why i wanted an actual owner owned property to deal with and NOT deal with an owner that i would wrap around their mortgage....it's a bit risky, but, as Toby might be able to explain better than i, how, exactly it worked when involved first hand...and...directly with a land contract.