When considering whether to buy or rent a home, the rent-to-price ratio—calculated as median annual rent as a percentage of median home price in a given area—can be a useful metric. In locations with high rent-to-price ratios, it may be better to buy, whereas in those with low rent-to-price ratios it can be more cost effective to rent.
In a new report from investment property website Roofstock looking at rent-to-price ratios in the U.S., researchers ranked metropolitan areas according to each’s rent-to-price ratio and included median monthly rent, home prices, and mortgage payments for each location. The rent-to-price ratio in the NYC metro area is 4.69% - meaning that out of all large U.S. metropolitan areas, NYC has the 11th lowest rent-to-price ratio - and suggesting a more attractive housing environment for renters than home-buyers..
A Question of Value
In recent years, home prices have been increasing faster than rents in the U.S., making homeownership less attractive. After dropping significantly during the housing crisis, home prices not only recovered, but rose by nearly 70% from their lowest levels. However, despite rising home values, in some parts of the country renting is still more expensive than owning when comparing monthly rents to monthly mortgage payments.
According to data from the U.S. Census Bureau and the Department of Housing and Urban Development, the median monthly rent in the U.S. is $1,369, while the monthly mortgage payment on a median-price home at current interest rates is less than $900.
Housing and rental prices vary considerably on a geographic basis. When considering whether to buy or rent, the rent-to-price ratio can be a useful metric—calculated as median annual rent as a percentage of median home price in a given area. In locations with high rent-to-price ratios, it can be better to buy; whereas, in those with low rent-to-price ratios, it can be more cost effective to rent.