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Which is Better Now, to Rent or Buy?

Thursday, 3 Jun 2010 | 11:17 AM ET
Home For Rent
Home For Rent
Home For Rent

Obviously as prices come down, which obviously they have, renters who never thought they could afford a home now can.

Add in a couple of government subsidies, like a tax credit and artificially low mortgage interest rates, and a touch of desperate un- or under-employed sellers, and you have the perfect buying storm.

We saw that during the run up to the end of the tax credit, as sales surged.

Now that the tax credit is gone, and employment is slowly improving, renters have to look at the equation again locally and see if it all adds up financially. A new report from Trulia.comtries to do that for you, but I found some really surprising results in it.

On the better-to-buy list you're seeing Minneapolis ranking number 1 and Las Vegas down at number 10.

Of course it's better to buy in Vegas than rent, but not as good as Minneapolis or even Miami, which ranks number 3? That just goes to show you how, even in one of the most distressed markets in the nation, the price ratios are still pretty far out of whack.

And then on the better-to-rent list, how can Oklahoma City and Kansas City be in there, and even Cleveland which has so many distressed properties? I'm not questioning the data so much as the situation. These rankings are based on the total costs of home ownership: mortgage principal and interest, property taxes, hazard insurance, closing costs and private mortgage insurance. I assume it also includes FHA premiums, since so many borrowers out there now are forced to use FHA loans due to tough credit requirements.

We talk about this being a buyers market, but as with everything else in real estate, that's a local call.

What this survey leaves out, however, is future potential. Despite the recent housing crash, real estate can and will be a profitable investment. Even if it's cheaper to rent in Seattle or San Francisco short term, the long term gains involved in buying are likely worth taking the plunge.

Questions? Comments? RealtyCheck@cnbc.com

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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