Department of Numbers

Q1 2011 Housing Affordability Update & Buy vs. Rent Analysis

Posted Wednesday, May 11 2011

David Leonhardt, Calculated Risk and myself have updated our respective home affordability metrics in the last day or so. We're all using slightly different numbers (the housing world is awash in data attempting to measure the same thing), but I'd say we all have about the same conclusions to draw. Housing is definitely becoming more affordable. CR notes that the national price-to-rent index from the CoreLogic home price series has now returned to 1999 levels. As the 90s were generally a non-boomy time for housing, this is real progress.

Looking at the data from a metro perspective, David Leonhardt sees more price-to-rent ratios under 15 (his threshold for affordability). He mentions Atlanta, Los Angeles, Miami, Minneapolis, St. Louis, Las Vegas, Cleveland, Detroit, Phoenix, Pittsburgh and Tampa as places where the rent-ratios on homes are looking good these days. I agree with the assessment for all of those cities with the exception of Los Angeles. I'm not sure how Moody's Analytics (Leonhardt's source) arrived at the low rent-ratio they did, but I'm not finding comparable figures. The home affordability numbers I've calculated show considerably higher price-to-rent and price-to-income ratios for LA.

So let's look at the LA data a little closer as an example of how we arrive at these ratios. According to Realtor metro price statistics, the median home in Los Angeles sold for $292,700 in the first quarter of 2011. The Census reports that the median contract rent for the city in 2009 (the latest data available) was $1,111. This yields a price-to-annual rent ratio of 21.95 $292,700/(12*$1,111). If you adjust the median contract rent by the household size (as described here), the adjusted median contract rent for LA increases to $1,206 per month and this reduces the rent ratio to 20.22. This still seems fairly high to me; it's certainly not in the realm of Atlanta, Las Vegas or Tampa affordability at least.

More importantly though, I think David answers the buy vs. rent question exactly right. In many places it's not a bad time to buy a home assuming relative affordability, access to credit, a steady income and (perhaps most significantly) no need to sell for at least five years.

I've appended the metro affordability ratio table below so you can compare cities yourself. In addition to the price-to-rent and price-to-income ratios there is also the rent-to-mortgage ratio. It behaves just like the price-to-rent ratio when sorted, but the value of this ratio actually has a bit more intuitive meaning. A value of 1.0 means that the rent is equal to the payment on a 100% loan-to-value 30 year fixed-rate mortgage at prevailing rates. Values greater than 1.0 mean that renting costs more and values less than 1.0 mean the mortgage payment costs more (under these particular mortgage terms). As a potential buyer or investor, you're looking for rent-to-mortgage ratios of greater than 1.0 because it means you could conceivably pay less to own than to rent. Click on the heading name to sort the cities. It's fun — unless you're thinking about buying in Honolulu.

Note: The latest metro affordability data is always available here.

Home Income and Rent Ratios Using Realtor Prices by City - Q1 2011

City, State Price-to-Income
(Dollar Ratio)
Adj. Price-to-Rent
(Dollar Ratio)
Adj. Rent-to-Mortgage
(Dollar Ratio)
 US 3.43 18.53 0.87
 Birmingham, Alabama 2.95 18.43 0.86
 Mobile, Alabama 2.67 15.09 1.05
 Montgomery, Alabama 2.70 17.18 0.92
 Phoenix, Arizona 2.40 13.69 1.15
 Tucson, Arizona 3.17 17.48 0.90
 Little Rock, Arkansas 2.78 16.89 0.94
 Los Angeles, California 5.00 20.22 0.78
 Riverside, California 3.22 15.02 1.05
 Sacramento, California 2.95 15.43 1.02
 San Diego, California 6.22 25.96 0.61
 San Francisco, California 6.31 27.86 0.57
 San Jose, California 6.45 30.53 0.52
 Boulder, Colorado 5.57 28.51 0.55
 Colorado Springs, Colorado 3.34 19.91 0.79
 Denver, Colorado 3.79 21.39 0.74
 Bridgeport, Connecticut 4.33 23.20 0.68
 Hartford, Connecticut 3.25 19.20 0.82
 New Haven, Connecticut 3.49 17.22 0.92
 Norwich, Connecticut 2.76 15.01 1.05
 Dover, Delaware 3.23 17.76 0.89
 Washington, District of Columbia 3.46 17.95 0.88
 Cape Coral, Florida 2.02 10.64 1.49
 Deltona, Florida 2.66 12.93 1.22
 Gainesville, Florida 3.89 16.66 0.95
 Jacksonville, Florida 2.55 13.07 1.21
 Miami, Florida 3.34 13.39 1.18
 Ocala, Florida 1.93 10.33 1.53
 Orlando, Florida 2.55 11.76 1.34
 Palm Bay, Florida 1.97 9.71 1.63
 Pensacola, Florida 2.88 15.58 1.01
 Tallahassee, Florida 3.34 15.08 1.05
 Tampa, Florida 2.58 11.93 1.33
 Atlanta, Georgia 1.80 10.58 1.49
 Honolulu, Hawaii 8.55 33.01 0.48
 Boise City, Idaho 2.64 15.70 1.01
 Bloomington, Illinois 2.66 17.81 0.89
 Champaign, Illinois 3.21 15.28 1.03
 Chicago, Illinois 2.64 13.97 1.13
 Decatur, Illinois 1.84 13.41 1.18
 Kankakee, Illinois 2.16 13.67 1.16
 Peoria, Illinois 2.02 14.24 1.11
 Rockford, Illinois 2.02 12.02 1.31
 Springfield, Illinois 2.23 16.46 0.96
 Fort Wayne, Indiana 1.75 10.99 1.44
 Indianapolis, Indiana 2.18 13.41 1.18
 South Bend, Indiana 1.58 8.94 1.77
 Cedar Rapids, Iowa 2.43 16.33 0.97
 Davenport, Iowa 1.88 12.78 1.24
 Des Moines, Iowa 2.36 14.73 1.07
 Waterloo, Iowa 2.21 14.87 1.06
 Topeka, Kansas 1.92 14.12 1.12
 Wichita, Kansas 2.19 15.82 1.00
 Lexington, Kentucky 2.85 18.05 0.88
 Louisville, Kentucky 2.67 16.95 0.93
 Baton Rouge, Louisiana 3.36 20.14 0.78
 New Orleans, Louisiana 3.20 15.45 1.02
 Shreveport, Louisiana 3.81 21.02 0.75
 Portland, Maine 3.71 17.52 0.90
 Baltimore, Maryland 3.25 17.92 0.88
 Cumberland, Maryland 2.23 15.56 1.02
 Hagerstown, Maryland 2.49 16.03 0.99
 Barnstable Town, Massachusetts 5.16 25.85 0.61
 Boston, Massachusetts 4.65 21.49 0.74
 Pittsfield, Massachusetts 4.08 17.50 0.90
 Springfield, Massachusetts 3.44 18.65 0.85
 Worcester, Massachusetts 3.14 18.15 0.87
 Grand Rapids, Michigan 1.72 9.99 1.58
 Lansing, Michigan 1.35 7.28 2.17
 Minneapolis, Minnesota 2.23 12.30 1.29
 Gulfport, Mississippi 2.31 10.98 1.44
 Jackson, Mississippi 3.04 18.49 0.86
 Columbia, Missouri 3.21 17.59 0.90
 Kansas City, Missouri 2.30 14.68 1.08
 Springfield, Missouri 2.80 15.58 1.01
 St Louis, Missouri 2.08 13.09 1.21
 Lincoln, Nebraska 2.77 16.23 0.97
 Omaha, Nebraska 2.46 14.59 1.08
 Las Vegas, Nevada 2.40 11.84 1.33
 Reno, Nevada 3.15 16.95 0.93
 Manchester, New Hampshire 3.16 16.35 0.97
 Atlantic City, New Jersey 4.02 19.72 0.80
 Trenton, New Jersey 3.05 17.76 0.89
 Albuquerque, New Mexico 3.58 19.20 0.82
 Farmington, New Mexico 3.80 27.48 0.58
 Binghamton, New York 2.41 14.51 1.09
 Buffalo, New York 2.58 15.18 1.04
 Elmira, New York 2.02 11.09 1.43
 Glens Falls, New York 2.77 16.56 0.95
 Kingston, New York 3.56 18.64 0.85
 New York, New York 5.98 26.55 0.60
 Rochester, New York 2.27 12.34 1.28
 Syracuse, New York 2.31 14.01 1.13
 Charlotte, North Carolina 3.81 21.84 0.72
 Durham, North Carolina 3.17 17.70 0.89
 Greensboro, North Carolina 2.80 16.30 0.97
 Raleigh, North Carolina 3.88 25.10 0.63
 Bismarck, North Dakota 2.86 18.19 0.87
 Fargo, North Dakota 3.06 14.82 1.07
 Canton, Ohio 1.98 13.07 1.21
 Cincinnati, Ohio 2.18 14.39 1.10
 Cleveland, Ohio 1.92 10.40 1.52
 Columbus, Ohio 2.25 13.87 1.14
 Dayton, Ohio 1.73 11.07 1.43
 Toledo, Ohio 1.50 9.30 1.70
 Youngstown, Ohio 1.35 8.72 1.81
 Oklahoma City, Oklahoma 2.87 18.55 0.85
 Tulsa, Oklahoma 2.65 17.08 0.93
 Portland, Oregon 3.84 20.44 0.77
 Salem, Oregon 3.42 20.17 0.78
 Allentown, Pennsylvania 3.28 17.90 0.88
 Erie, Pennsylvania 2.20 12.76 1.24
 Philadelphia, Pennsylvania 3.31 17.68 0.89
 Reading, Pennsylvania 2.62 14.92 1.06
 Providence, Rhode Island 3.85 19.69 0.80
 Charleston, South Carolina 3.80 19.24 0.82
 Columbia, South Carolina 2.85 18.17 0.87
 Florence, South Carolina 2.81 19.77 0.80
 Greenville, South Carolina 3.17 19.93 0.79
 Spartanburg, South Carolina 2.72 17.74 0.89
 Sioux Falls, South Dakota 2.92 17.21 0.92
 Chattanooga, Tennessee 2.88 17.33 0.91
 Knoxville, Tennessee 3.09 18.53 0.85
 Memphis, Tennessee 2.39 14.24 1.11
 Amarillo, Texas 2.78 15.84 1.00
 Austin, Texas 3.35 17.84 0.89
 Beaumont, Texas 2.86 17.24 0.92
 Corpus Christi, Texas 3.16 17.35 0.91
 Dallas, Texas 2.62 15.04 1.05
 El Paso, Texas 3.64 18.96 0.83
 Houston, Texas 2.74 16.20 0.98
 San Antonio, Texas 3.10 16.94 0.93
 Salt Lake City, Utah 3.33 17.28 0.91
 Burlington, Vermont 4.66 20.71 0.76
 Virginia Beach, Virginia 3.22 16.21 0.98
 Kennewick, Washington 3.25 21.61 0.73
 Seattle, Washington 4.48 22.54 0.70
 Spokane, Washington 3.57 17.88 0.88
 Yakima, Washington 3.43 22.22 0.71
 Charleston, West Virginia 2.90 20.22 0.78
 Appleton, Wisconsin 2.07 13.58 1.16
 Green Bay, Wisconsin 2.55 16.27 0.97
 Madison, Wisconsin 3.81 19.75 0.80
 Milwaukee, Wisconsin 3.49 19.76 0.80