[Daisy]

Hi everyone,

Thanks for your feedback & questions. Just wanted to chime in and hopefully clarify the methodology that goes into Trulia's Rent vs. Buy Index. To make an apples-to-apples comparison, we only looked at the median list price and annualized median rent for two bedroom apartments, condos and townhouses in the 50 largest U.S. cities based on population. As such, this index does not look at single family homes.

To calculate the actual ratio, we divide the median list price by the annualized median rent. Here's a sample Price-to-Rent Ratio Calculation: ---Median List Price: $140,201.37 ---Median Rent: $1,871.65 ---Price-to-rent ratio: $140,201.37 ÷ ($1,871.65 x 12) = 6

To interpret this ratio: ----Price-to-Rent Ratio of 1-15: It is much less expensive to own than to rent a home in this city. ----Price-to-Rent Ratio of 16-20: It is more expensive to own a home in this city. The total costs of ownership of a home in this city are greater than the costs of renting, but it might still make financial sense depending on the situation. ----Price-to-Rent Ratio of 21+: The total costs of owning a home in this city are much greater than the costs of renting.

By using 15 as our baseline for the interpretation key as opposed to 12 (which would only account for a year's worth of rent), we are able to account for the additional costs such as property tax and homeowners insurance.

Of course, we understand that the decision to buy or to rent is a deeply personal decision based on ones unique financial situation. The Rent vs. Buy Index was designed to be a guide to help folks gauge whether it's more affordable to buy or to rent a home in one of the 50 largest cities.

Feel free to contact us with any additional questions. We love the lively conversation and appreciate everyone's comments.

Cheers! Daisy Kong PR Manager, Trulia [e-mail]

[showerst]

This is a great infographic idea, but the census 'incorporated city' boundaries/populations is not that good of a data set for this use case.

Metropolitan statistical areas would've been a more reasonable choice here, since in many cities the city proper (as defined by incorporated bounds) is either vastly under or vastly over-priced compared to where people actually live, not to mention throwing off the relative populations.

As an aside, the way my map renders, Baltimore is north of New York =P. Great job though, and kudos to your developers for not using flash =)

[zach]

The difference between metropolitan statistical areas and cities is particularly noticeable with respect to Miami.

The city itself is only the 42nd largest in the country (population 450K) but the MSA (which includes Fort Lauderdale and many suburbs) is the country's 7th-largest (population 5M+).

[scott_s]

Similar situation for DC. The city proper has 600K, but the DC metro area (the parts of VA and MD near DC) has about 5.4M.

[leelin]

  By using 15 as our baseline for the interpretation key as
  opposed to 12 (which would only account for a year's worth
  of rent), we are able to account for the additional costs
  such as property tax and homeowners insurance.

Sorry you completely lost me on this line of reasoning, and I actually suspect you've got it quite wrong.

Why does 12 account for a year of rent as you say? The ratio is already the price of the house divided by the ANNUAL rent, is it not? Why 15 vs 12 vs 20 vs 30??? Also, additional costs of homeownership like tax and insurance means you should demand a LOWER ratio to truly make the cost of renting and owning equal, not higher as you suggest!

My understanding is the ratio is basically a proxy for the P/E ratio (just like P/E ratio in stocks). It is the price of the house divided by the income you would receive renting it. That ratio can float to whatever the market is willing to pay.

The graphic on Trulia specifically says though that the ratio is the point where renting == buying. How do you get 15?

One metric some people in this discussion are using is the ongoing carry costs of buying vs renting. With borrowing costs at 5% interest rates on 30-year fixed mortgages, along with a 40% marginal tax rate in places like NYC and SF, then the ratio that makes buying and renting about equal is much higher than 15; it has an upper bound at 33, because you can borrow at 3% factoring in tax deduction (1.00 / 0.03), but needs to be adjusted to account for HOA dues, real estate taxes, state income tax, nasty transaction costs, etc.