December 23, 2014

You Should Buy a House, (Unless you Live in San Jose, San Francisco, New York City, Boston or Seattle)

I'm going to make a broad generalization here :  You're probably better buying a house than renting in most of America.   Only a handful of cities with very expensive real estate are exceptions.   I'd also assume you're going to stay in a home for a reasonable period of time and assume generally average costs otherwise.

I will support this conclusion by looking at cost of housing vs rent in each city from my old article
Estimating Rental Investment Returns per Major Metropolitain Areas  And then I can take those and figure which cities favor renting vs buying.    The New York Times has a nice buy vs rent calculator to help you figure if buying or renting is a good idea.    So I simply take the figures for median home values and rents from my article and plug them into the NYT calculator.   To make it easy I started with the cities where being a landlord is worse deal which means that housing costs are high compared to rents.   I can do that by looking at the sorted list of lowest return for rent/housing cost.   San Jose is at the top of the list and the NYT calculator says for the $570,000 home cost there you are better off renting if rent is $2,066 or less.   But the average rents are $1,460 so yes in that city you're generally better off renting.   I went down the list and had similar results for San Francisco, NYC, Boston and Seattle.     #6 on the list is Providence, RI, where the houses cost $217,000.   The NYT calculator says you're better off renting if rent is $847 or less and the average rents are just a hair more at $849. 

So based on general numbers only the top 5 most renter friendly metros are better places to rent than to buy.   San Jose, San Francisco, New York, Boston and Seattle.   In those 5 cities its generally cheaper long run to rent.  The other 43 cities on the list are all better places to buy than rent.   I would also then make the assumption that the smaller cities and rural areas in the US are generally going to be better to buy than rent as well as generally housing is lower in small towns and rural areas.   Of course there will be exceptions out there.

Of course there are major holes in my methodology here.  I used the average figures in the NYT calculator and thats not something you can assume.  Property taxes, insurance, etc vary widely across the country so to get a better result I'd have to find and plug in the averages for each city.  But thats far to much work for a lazy blogger like myself to do.


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