Where to Buy: Price-to-Rent Ratio in 84 U.S. Cities

The price-to-rent ratio measures the relative affordability of renting and buying in a given housing market. It’s a good factor to consider if you’re deciding whether to rent or buy. It’s especially useful if you’re considering a move, because it allows you to see what prices look like in your new city. As a general rule, a lower price-to-rent ratio indicates that a place is more favorable to homebuyers. A higher ratio indicates a better environment for renters.

How to Calculate Price-to-Rent Ratio

To calculate the price-to-rent ratio, we used the following equation:

median home value ÷ median annual rent = price-to-rent ratio

Our data comes from the U.S. Census Bureau, which provides median home values and median monthly rent. As a simple example of the how the formula works, consider Phoenix, Arizona. Phoenix has a median home value of $231,000 and a median annual rent of $12,156. Its price-to-rent ratio is 19 because $231,000 ÷ $12,156 = 19.

Price-to-Rent Ratio by City

To help you in your renting and buying decisions, we found the price-to-rent ratio in every U.S. city with a population over 250,000. Applying that ratio, we also calculated a projected average home price for a house or apartment that rents for $1,000 in each market. Note that these home values are just projections. Actual home values will vary based on other factors such as proximity to commercial centers, access to transit and home size. Rentals tend to be smaller (and therefore less expensive) than for-sale properties, so these values may overestimate true market prices.

The cities with the highest price-to-rent ratios are San Francisco, Oakland and Honolulu. That means they’re the least friendly to homebuyers (since home values are significantly higher than what you’d pay in rent). At the other end of the spectrum are cities like Detroit, Cleveland, Memphis and Toledo. These markets are very favorable to homebuyers, with ratios below 10.

Price-to-Rent Ratio in New York City

In New York City, an apartment that rents for $1,000 should cost around $441,987. That, however, represents the entire market—all five boroughs. In Manhattan and Brooklyn, the numbers are even higher. The following table has price-to-rent ratios for each of the five New York boroughs. Considering its high ratio, Manhattan is one of the most expensive places to buy a home in the country.

Historical Price-to-Rent Ratio

National and city price-to-rent ratios rise and fall over time depending on the state of the housing market. In the years before the housing crisis, as the housing market heated up, the national ratio rose from 22.73 (in 2005) to 24.50 (in 2007). After the real estate market turned, home prices fell and rentals grew more expensive. That drove down the ratio and it dipped below 20 in 2011.  It currently sits at 17.91.

Before the housing bubble and subsequent crisis around 2008, the national price-to-rent ratio hovered around 15. That indicates that we are still in a time period that is slightly more favorable to renters than buyers.

What Price-to-Rent Ratio Says About Affordability

While the price-to-rent ratio is useful for comparing buying to renting, it does not reflect the overall affordability of buying or renting in a given market. In theory, a place where renting and buying are very expensive could have the same price-to-rent ratio as a place where both renting and buying are very cheap.

Take San Francisco as an example. The city has the highest price-to-rent ratio in the country, indicating that renting should be more affordable than buying. However, rentals in San Francisco are also notoriously expensive. The city’s high price-to-rent ratio only reflects that buying is relatively more expensive than renting within the city. It does not saying anything about the overall affordability of housing compared to other cities.

Before You Buy a Home

• Trying to decide whether to buy a home or continue renting? Our rent vs. buy calculator can help make the decision easier.
• If you’re like most people, a home is the most expensive purchase you’ll ever make. That’s why it’s a good idea to consult with a financial advisor before taking the plunge into homeownership. If you don’t already work with an advisor, you can use our advisor matching tool to find one in your area. Just tell us a bit about your financial goals and needs, and we’ll match you with up to three local advisors to choose from.

Photo credit: ©iStock.com/Vasyl Dolmatov, ©iStock.com/Eloi_Omella