Home Economics

Prices have fallen, but in many cities, renting is still cheaper

  • Buying a home is more affordable that it has been in decades. But what's even more affordable in a lot of U.S. cities? Renting. The price-rent ratio compares the price of a property with the annual cost of renting. When the figure falls below 17, the monthly cost of a mortgage, taxes and maintenance is less expensive than that of signing a lease. On average, that is now the case in the U.S. But in a number of large cities, renting remains the cheaper option. For example, despite the housing bust, it's still 65% more expensive to own than it is to have a landlord in San Francisco. In Seattle, Austin, Nashville and Raleigh, N.C., the purchase premium remains above 20%. If interest rates rise, as many expect, that may tip the scales toward renting in even more areas of the country. That may explain why housing prices, even with the economic recovery, are falling, and why that may continue.