To Buy or Not To Buy: That is the Question

January 25, 2011

With the Chicago real estate market in a slump, does it make more sense to rent a home than to buy one?

Nope. According to new data, buying a home is cheaper than renting in 72 percent of the 50 largest U.S. cities, including Chicago.

The information comes from Trulia.com’s latest Rent vs. Buy Index, which compares the median list price with the median rent on two-bedroom apartments, condos and townhomes listed on the real estate site as of January 10, 2011.

Take the two and divide to figure out the price-to-rent ratio.

Here’s an example:

* Median List Price: $140,201.37

* Median Rent: $1,871.65

* Price-to-rent ratio: $140,201.37 ÷ ($1,871.65 x 12) = 6

Here’s what the price-to-rent ratios mean:

*1-15: Owning a home is much less expensive than renting in that city.

*16-20: The total costs of homeownership in this city are greater than the costs of renting, but it still might make financial sense to buy.

*21 and up: Renting in this city is much less expensive than owning a home.

Miami and Las Vegas ranked No. 1 and 2 on the list of most affordable cities in which to buy over rent with price-to-rent ratios of 6 each. Those two cities carry some of the highest foreclosure rates in the country.

Chicago came in No. 24, tied with nine other cities with a ratio of 13.

According to Trulia.com:

*36 cities fell within the 1-15 category

*10 cities hit the 16-20 ratio

*Only four cities scored ratios of over 21: New York (31), Seattle (24), Kansas City, Missouri (21) and San Francisco (21).

“Since the start of the ‘Great Recession,’ many former homeowners have flooded the rental market,” said Pete Flint, CEO and co-founder of Trulia. “Following the principles of supply and demand, renting has become relatively more expensive than buying in most markets.”

To see the entire list of cities and their ratios, click here.

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