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"...of Top 50 [American] Cities" It's odd seeing lists like this that focus only on a specific country, ignoring important neighbors. Take Toronto, for example. That city is more important than 40-45 of the cities listed, but since it's a few miles North of some border, it gets completely ignored. Why not focus on a geographic region instead?
The border likely affects the availability and format of the data needed to make the calculation.
Very very cool! I'm wondering why they chose 15 / 20 as the cutoff ratios though. I'm a licensed real estate agent in NYC and I've helped a number of clients make purchases where it was actually cheaper to buy than rent (usually a studio or 1BR, or outside Manhattan). It seems like you can finance a home purchase these days at 5% or less on 30-year fixed. Add in the mortgage interest tax deduction and you are really…
buying: ~$24K
renting: ~$36K
EDIT:
less risky buying option : ~$30K
There are many good replies to this thread, that essentially point out that buying a house is risky, and that my assumptions do not deal with any 'bad case' scenarios. But nor do my assumptions deal with any 'good case' scenarios (house prices being higher in 5 years time in San Francisco - it might just happen..) But the topic of the original article is about costs, not risk, so I kept the topic at parity, and only dealt with costs. If I were advising anyone for real on rent-vs-buy I would strongly encourage them to consider the risk and reward element of the rent-vs-buy decision, in the context the general financial situation.
Summary: buying is riskier than renting, and it can also be substantially cheaper. Right now, with a 30-yr fixed mortgage, it's cheaper. You have to take on the 'house price risk', but that also carries a potential reward, as this is San Francisco..
The statistics on this infographic are misleading. It does not cost 200,000 to buy a house in San Diego or San Jose! Maybe the average for downtown San Jose and San Diego are close to 200k, but that is the poorest area of both cities and not what should be used to compare. The green bubble on the point for San Diego should be much much smaller in radius(like miniscule), otherwise you think the 200k number refers to t…
I believe that they're basing this data on stats collected by the census, so you have take the city as defined by the census bounds, which aren't necessarily similar to common conceptions of what area is 'in' a city.
They should make the size of the bubble smaller to only cover the area of the city like you are saying.
The statistics on this infographic are misleading. It does not cost 200,000 to buy a house in San Diego or San Jose! Maybe the average for downtown San Jose and San Diego are close to 200k, but that is the poorest area of both cities and not what should be used to compare. The green bubble on the point for San Diego should be much much smaller in radius(like miniscule), otherwise you think the 200k number refers to t…
I do a lot of work in this domain and the price-to-rent and price-to-income ratios for California look higher by my calculations. Using median sales prices for the broader metro area and income and rent data from the Census, I'm finding California is still quite expensive.
http://www.deptofnumbers.com/affordability/metros
Click on the table heading columns to sort and you see some pretty unaffordable stuff in California. For San Jose the rent ratio is ~35.
Note: In case it wasn't obvious, I'm linking to a site I maintain above.
1. That the value of the property will fall.
2. That you will be offered a better job in another town and it's too expensive to move
The decision to buy is prone to two major risks: 1. That the value of the property will fall. 2. That you will be offered a better job in another town and it's too expensive to move
Buying a home to live in is a form of un-diversification.
"...of Top 50 [American] Cities" It's odd seeing lists like this that focus only on a specific country, ignoring important neighbors. Take Toronto, for example. That city is more important than 40-45 of the cities listed, but since it's a few miles North of some border, it gets completely ignored. Why not focus on a geographic region instead?
NYC is a special case in many ways. For one thing, from a purely financial perspective, your best bet is to find a rent stabilized apartment that is well under market value and then invest your money elsewhere, possibly on buying a property you don't live in in NYC!
In Australia, buying property is a big thing. I'd imagine that in OECD rankings for home ownership, Australia ranks reasonably highly. Interestingly, the Guardian (in the UK) years ago did a study that showed that economic growth in Europe was inversely proportional to the rates of home ownership (meaning the countries with the highest rates of home ownership--eg Spain--had the worst performing economies and vice versa).
This makes a certain amount of sense: home ownership creates a less flexible labour market.
Anyway, in Australia, it's common to not only buy the property you live in but also investment properties. Investment properties are tax advantageous (in that the mortgage interest is a tax deduction) but you pay capital gains tax when you sell (but a good investment strategy will have you never selling; you just free up the equity to buy something else). The home you own is the reverse: mortgage interest is not tax deductible but your principal place of residence is capital gains tax free when you sell.
Now the thing about real estate is that it's a hedge against inflation. For example, 10 years ago you could buy a 3 bedroom house (built in the 70s) 10 miles from the city centre in Perth for minimum. There was a structural change in the economy that hasn't since reversed and doesn't look like ever reversing. Part of this was the increase in land cost but part of it is the increase in building cost (where once you could build a house for $80k, now anything less than $150-200k is unrealistic).
So if you'd rented in that time you would've missed out on that huge jump. Thing about real estate growth is that it is never smooth. It'll go through periods of high growth and others of stagnant prices if not negative price growth. So it's a long term investment (typically 7+ years).
But the real estate market in Australia is highly speculative.
I say that because I've also lived in Switzerland, which has an almost planned economy. The tax system stamps out property speculation, arguing that it is in the common good to have affordable housing. This is an opinion that I think has merit. To give you an example, if you sell a property within 2 years of buying it, the capital gains tax is 100% (iirc), meaning the entire gain is taxed.
Anyway, back to NYC. NYC has a lot going for it from a real estate perspective. It's a center for jobs but also land is a finite resource here. Manhattan isn't getting any bigger. Most industrial areas have already been converted to residential (or, more accurately, mixed residential/commercial). Manhattan is mostly gentrified now.
Betting on a limited resource is typically a good plan but the difference between renting and buying is huge here. Like a 1BR that might cost $2000 to rent will probably cost >$500K to buy and have significant ($300-600/month) maintenance fees to boot.
I really don't understand what motivates investors for that kind of return. So something will change in the future but will prices come down (or just stagnate for years) or will rents go up? If it's the former, rent. If it's the latter, buy.
So I'm really torn on whether I should position myself to buy in the future or simply resign myself to renting. At this stage I'll probably rent just because I may move around with my employer (Google) but I must admit: the prospect of owning an apartment in Manhattan is appealling.
Earlier quoted context omitted.
I believe that they're basing this data on stats collected by the census, so you have take the city as defined by the census bounds, which aren't necessarily similar to common conceptions of what area is 'in' a city.
There are many cities in the county of San Diego. The city of San Diego (where you are suggesting that the 200k number came from) is about 10-20% of the size of the county of San Diego. They should make the size of the bubble smaller to only cover the area of the city like you are saying.
http://www.trulia.com/home_prices/California/San_Diego-heat_... breaks it down better, my domain knowledge of SD ends there, I couldn't tell you whether they're showing an accurate pic of what constitutes most people's idea of San Diego.
The circle is definitely scaled correctly though, the ratio of area of the circle to population (1306300 people per 1809 pixels, or about 722 people per pixel) is within the margin of error for my numbers for new york (about 662ppl/pixel), and LA (about 725ppl/pixel).