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Rent vs. Buy Visualization of Top 50 Cities

trulia.movity.com

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Re: Rent vs. Buy Visualization of Top 50 Cities

#31

Post by Daisy »

Hi everyone,

Thanks for your feedback & questions. Just wanted to chime in and hopefully clarify the methodology that goes into Trulia's Rent vs. Buy Index. To make an apples-to-apples comparison, we only looked at the median list price and annualized median rent for two bedroom apartments, condos and townhouses in the 50 largest U.S. cities based on population. As such, this index does not look at single family homes.

To calculate the actual ratio, we divide the median list price by the annualized median rent. Here's a sample Price-to-Rent Ratio Calculation: ---Median List Price: $140,201.37 ---Median Rent: $1,871.65 ---Price-to-rent ratio: $140,201.37 ÷ ($1,871.65 x 12) = 6

To interpret this ratio: ----Price-to-Rent Ratio of 1-15: It is much less expensive to own than to rent a home in this city. ----Price-to-Rent Ratio of 16-20: It is more expensive to own a home in this city. The total costs of ownership of a home in this city are greater than the costs of renting, but it might still make financial sense depending on the situation. ----Price-to-Rent Ratio of 21+: The total costs of owning a home in this city are much greater than the costs of renting.

By using 15 as our baseline for the interpretation key as opposed to 12 (which would only account for a year's worth of rent), we are able to account for the additional costs such as property tax and homeowners insurance.

Of course, we understand that the decision to buy or to rent is a deeply personal decision based on ones unique financial situation. The Rent vs. Buy Index was designed to be a guide to help folks gauge whether it's more affordable to buy or to rent a home in one of the 50 largest cities.

Feel free to contact us with any additional questions. We love the lively conversation and appreciate everyone's comments.

Cheers! Daisy Kong PR Manager, Trulia pr@trulia.com

Re: Rent vs. Buy Visualization of Top 50 Cities

#32

Post by mrtron »

tomsaffell wrote: post #22
leelin wrote: post #8

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…

I agree. I just ran the numbers for SF. Based on mid-point of Trulia's buying and renting price ranges ($750K to buy, $3.25K monthly rent), I get the following annual real costs: buying: ~$24K renting: ~$36K That is based on the following assumptions: 40% margin tax rate, principal repayment is not a real cost (it's a saving account...) 15% down payment (renters invest the equivalent amount in a 3% annual return fund…

   available now on 5 year ARMs -- you can always go back to
   renting in 5 years, and if rates soar then that means the 
   economy has recovered, which means your house is worth more..
Rates soaring could also push the real estate prices drastically down.

Re: Rent vs. Buy Visualization of Top 50 Cities

#33

Post by showerst »

ry0ohki wrote: post #13

Interesting how DC and LA seem to have similar numbers and yet DC is affordable to buy (because rents are slightly higher?) while LA is more affordable to rent and a much larger bubble indicating some dramatic difference that I don't see.

The circles are scaled by population, and according to the census city boundaries they're measuring LA is 3.8MM compared to DC's 600K, which is a pretty dramatic difference, although it's just an artifact of which data they chose to use for population.

Personally I think they should've measured by metro areas, although unless they have detailed lat/lon for every property they sell working out that data might've been a mess.

Re: Rent vs. Buy Visualization of Top 50 Cities

#34

Post by cma »

tomsaffell wrote: post #22
leelin wrote: post #8

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…

I agree. I just ran the numbers for SF. Based on mid-point of Trulia's buying and renting price ranges ($750K to buy, $3.25K monthly rent), I get the following annual real costs: buying: ~$24K renting: ~$36K That is based on the following assumptions: 40% margin tax rate, principal repayment is not a real cost (it's a saving account...) 15% down payment (renters invest the equivalent amount in a 3% annual return fund…

     >if rates soar then that means the economy has recovered
This is not true.

     >the economy has recovered,which means your house is worth more
This is also not true, taken independently of soaring rates or otherwise.

Re: Rent vs. Buy Visualization of Top 50 Cities

#35

Post by showerst »

keiferski wrote: post #4

Cleveland is included, but not Pittsburgh? Someone's a Jets fan... On a technical note, the information in the hover bubble is mis-aligned; the right side is a space below the left side, at least on this older version of Firefox.

They just pulled the top 50 cities from the census, Cleveland is 43, Pittsburgh is 61.

https://secure.wikimedia.org/wikipedia/en/wiki/List_of_Unite...

(Cities vs metro areas, oh the perils of using census data.)

Re: Rent vs. Buy Visualization of Top 50 Cities

#36

Post by showerst »

aik wrote: post #28

I'm confused about the populations. For example, it mentions the population of Kansas City is 143K. Wikipedia says 482,299, and "greater" KC is closer to a million. What exactly is measured here?

Population of the incorporated city in 2009 from the census. https://secure.wikimedia.org/wikipedia/en/wiki/List_of_Unite...

They probably should've used metro area, but that might've been a data challenge if they lacked lat/lon for each property.

EDIT: Looks like they're using the wrong Kansas City! That 143K population number is for Kansas city, Kansas, which is much less than half of the total city.

The other half, Kansas city, MO is 482,299, and in the top 50, unlike Kansas City, Kansas.

Probably a bug.

Re: Rent vs. Buy Visualization of Top 50 Cities

#37

Post by klochner »

tomsaffell wrote: post #22
leelin wrote: post #8

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…

I agree. I just ran the numbers for SF. Based on mid-point of Trulia's buying and renting price ranges ($750K to buy, $3.25K monthly rent), I get the following annual real costs: buying: ~$24K renting: ~$36K That is based on the following assumptions: 40% margin tax rate, principal repayment is not a real cost (it's a saving account...) 15% down payment (renters invest the equivalent amount in a 3% annual return fund…

   > 30 year ammortization of loan with a 4% rate (available now on 5 year ARMs)
You realize that's how a ton of people lost their homes, right?

Re: Rent vs. Buy Visualization of Top 50 Cities

#38

Post by keyle »

cletus wrote: post #29

I'm from Australia but now live in NYC and I've been debating the question about whether to buy or rent. It's amusing to me to see a big red circle on this graphic for NYC. I can understand why. 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 bu…

Hey mate. Interesting perspective.

without knowing your financial situation, I'd suggest to keep working in the U.S. and invest in housing back in Australia.

Both are great prospects but you might be able to buy 2 houses near the beach in Australia (say Perth / Adelaide) for the price of one in NYC. In a way, it gives you diversification that NYC doesn't. Also buying walking distance from the beach gives you that security that land value will never go down.

I agree about the tax system in Australia. But I like it.

Re: Rent vs. Buy Visualization of Top 50 Cities

#40

Post by showerst »

Daisy wrote: post #31

Hi everyone, Thanks for your feedback & questions. Just wanted to chime in and hopefully clarify the methodology that goes into Trulia's Rent vs. Buy Index. To make an apples-to-apples comparison, we only looked at the median list price and annualized median rent for two bedroom apartments, condos and townhouses in the 50 largest U.S. cities based on population. As such, this index does not look at single family home…

This is a great infographic idea, but the census 'incorporated city' boundaries/populations is not that good of a data set for this use case.

Metropolitan statistical areas would've been a more reasonable choice here, since in many cities the city proper (as defined by incorporated bounds) is either vastly under or vastly over-priced compared to where people actually live, not to mention throwing off the relative populations.

As an aside, the way my map renders, Baltimore is north of New York =P. Great job though, and kudos to your developers for not using flash =)

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