Rent-to-Buy Ratios Improve, Buy Now!
The rent-to-buy ratios in some markets are improving, coming close to the ideal 15-to-1 radio of median sales prices to median annual rents. That translates to needing $150,000 to buy a house that would rent for $10,000 a year. The ratio was as high as 25:1 in certain overheated markets at the height of the housing boom.
If the ratio of how much it costs to buy a home versus renting keeps dropping, or is near the historic low of 15:1, it's a good time to buy.
According to a report by the Center for Economic and Policy Research and the National Low Income Housing Coalition, prices have aligned with rents in many markets around the country meaning it could be a good time to move from a rental house to buying a home.
However, the report shows that it could be years before home buyers in 21 housing markets begin to accrue positive equity.
The study found that 14 of 27 markets that had been inflated in April 2008 have seen price-to-rent ratios fall below 18:1. One of the most affordable markets is Las Vegas, at 12.5:1 in April, down from 19:1 ratio a year earlier.
The ratio is also down in California's Inland Empire, down to 13.7:1 from 20:1 a year ago.
Markets that had ratios much higher than the national average have dropped. In Los Angeles the price-to-rent ratio dropped to 21.5:1 in April from 28:1 last year. In San Jose, Calif., it dropped from 35:1 last year to 29.4:1 in April.
But moving from a rental home to home ownership can take longer for owners to get positive equity. The study estimates that homes bought today in 21 markets won't have positive home equity for four years, assuming that it takes a first-time home buyer five years to begin accruing equity in a home after accounting for purchase and resale costs.
Cities with the potential for future losses in home values include San Francisco, Seattle, and Bridgeport, Conn. Markets that could also see larger equity drops in 2009 are Providence, R.I.; Washington, D.C.; and Worcester, Mass.
Of course, there are lists of the top communities to live in for their affordability and strong economies to keep in mind too when looking for a rental house.
For tips on what to do if your landlord is foreclosed on click here. And for more tips on buying a home click here.