To buy or not to buy? That is the question many renters face when trying to decide when or if to jump into the housing market. On top of monitoring mortgage rate trends and housing prices, analyzing the price-to-rent ratio for your desired city is a helpful tool for determining whether it is a better personal finance choice to rent or buy a home.
The price-to-rent ratio is calculated by dividing the median home price by the annual median rent. A high price-to-rent ratio of 21 or more suggests that it is more expensive to buy a home than to rent, while a lower price-to-rent ratio of under 16 suggests that it is less expensive to buy a home rather than rent. A moderate price-to-rent ratio between 16-21 suggests that it is likely more favorable to rent rather than buy, but it will depend on individual financial circumstances.
It’s important to note that the price-to-rent ratio doesn’t take into account the overall affordability of an area, but it can be useful in determining if specific property types are fairly valued compared to rental prices.
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To help renters, buyers, and investors find the next best city to rent or buy a home in, Zoocasa calculated the price-to-rent ratio in 32 cities across the US for single-family homes and condos. Median rental prices were sourced from Rent.com’s most recent report and median single-family and condo prices were sourced from the National Association of Realtors® and individual real estate boards.
Buyer’s Advantage: The Best US Condo Markets
In every condo market we analyzed besides San Diego, the price-to-rent ratio suggests it is less expensive to buy a condo than to rent an apartment. Since the Fed began raising interest rates in 2022, the national median asking rent has remained elevated, hovering around $2,000. But even with borrowing costs high, the favorable price-to-rent ratios for condos indicate that purchasing is a more financially sound option if you have the means.
The highly sought-after markets of New York and Miami have the lowest price-to-rent ratios for condos with ratios of 7.9 and 9.6 respectively. In both cities, the median condo price is more than $250,000 less than the median single-family home price, while the median monthly rent is a staggering $4,121 in New York and $3,057 in Miami. Given the promising potential for equity growth in these competitive markets, purchasing a condo becomes a particularly attractive option.
Philadelphia, San Antonio, and Chicago have the next lowest price-to-rent ratios for condos - all under 10.3 - with San Antonio having the lowest median condo price of the three at $175,000.
As the price-to-rent ratio doesn’t take into account how affordable a city actually is, some smaller cities with higher price-to-rent ratios for condos have much lower prices compared to New York and Miami. For instance, Columbus and Milwaukee have price-to-rent ratios of 12.5 and 12.4 respectively, while their median condo prices are below $280,000. The median rent in both cities is also low, further highlighting how the price-to-rent ratio is useful for comparing resale and rental values, but not in directly determining which option is better given personal financial circumstances.
The 13 Cities Where It’s Better To Buy a Single-Family Home Than Rent
When calculating price-to-rent ratios for single-family homes, the ratios increase quite a bit compared to those for condos. San Diego, Nashville, and Seattle all have price-to-rent ratios for single-family homes above 21, suggesting that it is less expensive to rent here than to buy. San Diego has the highest median single-family home price on our list at $981,000, which is more than $80,000 higher than the next most expensive on our list, Boston. While San Diego’s median rent of $3,400 is only the fourth-highest on our list.
On the other end of the spectrum, Pittsburgh has the lowest price-to-rent ratio for single-family homes at 9.6. The median single-family home price in Pittsburgh is $207,100 - the lowest of all of the cities we analyzed. Buffalo is the only other city with a price-to-rent ratio for single-family homes below 12. Philadelphia and Detroit follow with price-to-rent ratios of 12.2 and 12.3 respectively.
In the majority of cities we analyzed, including affordable cities like Oklahoma City, Houston, and Indianapolis, the price-to-rent ratios for single-family homes exceed 16, indicating that median rent is relatively low compared to the costs of homeownership.
Although purchasing a single-family home may be more unaffordable than renting in many major cities, opting for buying a condo first and building equity can be a sound step in reaching the goal of owning a larger home.
If you’re looking to enter one of these markets, whether as a renter or a buyer, it’s important to speak with a local realtor who can give you specific information and guidance about the local real estate market. Give us a call today to discuss your home-buying plans.
