I've long championed the idea that local news and data is more valuable than what the national news gives us. So when a client of mine sent this New York Times article over to me, it definitely piqued my interest. The headline , "In Sour Home Market, Buying Often Beats Renting", is a great attention grabber for sure.
Do they believe that Seattle is a good place to buy? Here's an excerpt:
"But in a handful of other areas, including San Francisco, Seattle and Portland, Ore., house prices remain significantly higher than they were before the bubble began. People who buy a home in these areas will face higher monthly costs than if they rented, even after taking tax deductions into account."
Ouch. The premise that rental rates vs sales prices correlate with each other is sound. But is the data they are reporting true? Does it hold water with what is happening locally?
They explain how they come up with this data by looking at the rent ratio: the purchase price of a house divided by the annual cost of renting a similar one. They give the number 20 as a good benchmark to see where the market is at. Many other places nationwide, like Las Vegas, Miami, San Diego and Phoenix are well below where they were in 2005. These places are now deemed a good place to buy.
According to the New York Times, Seattle has only gone from 32.4 in 2005 to 28.1 today. They deem that an environment where renting is a good idea generally speaking. I actually wasn't sure if this was a good indicator of how our local market is doing currently, so I decided to see what I came up with on my own.
The rent vs buy ratio they use seemed simple enough to calculate. We just need the average sales prices in an area along with what the annual rents are for the same area.
For March, we found that we had an average sales price in Seattle of $493,971.
Average Rent, according to rentbits.com, were $2069 for all home rentals in Seattle. On a side note, here's a graph of the rental rates for Seattle as well going back 12 months.
Using the NY Times model above, lets put in our own calculations:
$493,971/($2069*12) = 19.89.
Thats right, we come in right at the benchmark of where you should think about buying rather than renting.
It's a far cry for me to promote the benefits of buying a home vs renting. Each individual has specific circumstances that weighs in on their decision making. Income, interest rates, job stability, purchase price and home quality seem like better reasons to buy a home than what the rent vs buy ratio is in my humble opinion. This kind of information does seem to be a good benchmark for how the market is generally doing, but be sure to use local sources to find the real story.
Thanks everyone,
Chris Lodge - Property Information Manager at the Talon Group
