Rent Ratios: Key to When to Buy?


Wake up, Pittsburgh! Hello, Phoenix! Pick yourself up, Detroit! It's a brand new day. According to the New York Times, these are just a few of the lucky (though relatively downtrodden) U.S. cities where buying a house has recently become substantially more affordable than renting one. That means home ownership, particularly for first-time buyers, should be pretty much a no-brainer. But there are a few catches.

The Times based its conclusions on a figure known as the rent ratio. To get the rent ratio you divide the purchase price of house by the yearly cost of renting a similar property. If the resultant number is above 20, then renting should be a better deal; but if it is substantially below 20, then buying is your best financial bet. At least, that's the theory.