Real Estate Prices – Should you Rent or buy?

Rent or buy? The question seems almost as ‘old as to be or not to be?’ Or, ‘which came first, the chicken or the egg.’  And though the answer is a highly personal one for every person, today’s market conditions demand the question be asked anew.

New Rules=New Game

Because the rules for lending are getting harder, more Americans find they cannot qualify for home loans. This puts more people who need homes into the rental market, allowing rents to rise in response to demand.  The rental market is booming in many parts of the country right now, paradoxical in comparison to so many other aspects of the economy.

But this situation changes the game for buyers. If less people can buy, home prices experience downward pressure; we can this evidenced by the fact that in response to shrinking demand, homes in some areas of the country are more affordable now than ever. Combine this information with today’s low interest rates and the rent vs. buy question deserves reconsideration.

American Cities in Focus

We’ll start with Portland, OR. As of August, 2011, average apartment rent within 10 miles of Portland, OR was $993. One bedroom apartments in Portland rented for $825 a month on average and two bedroom apartment rented for an average of $965.

Meanwhile, ZipRealty has recorded the median prices for home sales in Portland from 10/2011-9/2011. You see here the median price and median price per square foot.

Portland as a Case Study

  • Methodology:

Using  one of Zip Realty’s Calculators, we compared the cost of renting in Portland over 30 years assuming the rent would never go up with the cost of owning with a 30-year fixed mortgage.

Because Portland property tax rates vary wildly by location, we picked an average rate. The other numbers are hard to pinpoint since they will also change—indeed, they go up or down daily (if not hourly).  Clearly then, we can only give a general overview; your best bet for this kind of rent-vs-buy study is to input specific data applicable to you.

In this case, we upped both the rent figure and the home buying price a smidge from recorded medians, using a base rent of $1000 per month and a home purchase price of $250K. We also input 20% down, knowing that with today’s stricter lending practices, 20% will likely be required.

The figures are listed below:

 

This calculator does more than just calculate the various expenditures. It also calculated tax savings for homeowners over the course of the loan (a savings that renters do not usually enjoy)

Even with these projected numbers, ownership offers a substantial savings over the long haul.

Using this calculator, you can run the numbers for any property you like. Here we provide you with median home prices for 5 metro areas ZipRealty serves, data recorded from October of 2010 to September of 2011.

1. Houston, TX

 

  • Rental medians:

According to RentJungle.com, as of August, 2011, average apartment rent within 10 miles of Houston, TX is $1067. One bedroom apartments in Houston rent for $930 a month on average and two bedroom apartment rents average $1238.

2.  East Bay, CA

  • Rental Medians:

As of August, 2011, average apartment rent within 10 miles of Oakland, CA was $1693. One bedroom apartments in Oakland rented for $1573 a month on average and two bedroom apartment for an average  of $1801. Also in the East Bay and popular with renters and buyers alike is Berkeley. One bedroom apartments in Berkeley rented for $1739 a month on average; two bedroom apartment rented on average for $2078.

 

3.  Sacramento, CA

  • Rental Medians:

As of August, 2011, average apartment rent within 10 miles of Sacramento, CA was $973. One bedroom apartments in Sacramento rented for $740 a month on average and two bedroom apartment rentsed for an average $930.

4. Boston, MA

 

  • Rental Medians

As of August, 2011, average apartment rent within 10 miles of Boston, MA was $2116. One bedroom apartments in Boston rented for $1708 a month on average and two bedroom apartment rented for an average of $2071.

Resources:

ZipRealty Learning Center Calculators

RentJungle.com