Trulia: Still Cheaper to Buy Than Rent in DC

• April 28, 2011
• 8 Comments

by Mark Wellborn

It is still cheaper to buy a home than rent one in DC (along with 78 percent of the 50 largest cities across the country), according to a report published today from real estate search website Trulia.com. The Trulia report comes just a couple days after the release of a Harvard University study that revealed that the number of “renters who spend more than half their income on housing is at its highest level in half a century.”

Trulia’s Rent vs. Buy Index, which launched in June 2010, calculates the price-to-rent ratio using the median list price for two-bedroom properties compared with the median rent for two-bedroom apartments, condos and townhomes listed on its site. The index uses a rule of 15, which means that if the median list price divided by the annual median rent produces a score of 15 or less, the city is considered a good place to buy. The index is separated into three categories: The first includes cities with scores ranging from 1 to 15, which are considered places where it is more expensive to rent than to buy; the second, with scores of 16-20 are places where renting or buying is more situation dependent; and the third, with scores of 21 or higher, are places where buying costs are significantly greater than renting.

DC, along with cities like Chicago, Minneapolis and Raleigh, scored a 13 on the Trulia scale, which means that the website has deemed it a place where it is much less expensive to buy than to rent. (In January, Trulia reported that DC had a score of 12, so the city has inched slightly closer to the “15 point” threshold.) For comparison, New York with a score of 39 (up from 31 in January) is a city where you should continue to rent, according to Trulia.

While the index does provide some perspective on the rent versus buy debate, an individual’s decision as to whether they will buy a home requires taking a number of variables into account (property taxes, down payment, interest rates) for the total cost of ownership, a point that Trulia acknowledges.

“We created the index to determine which cities have overpriced rent and which have underpriced,” Daisy Kong of Trulia told UrbanTurf in January. “The decision to buy a home is a very personal one and the index should just be used as a guide in that process.”

To see how DC compares to other cities in the country, check out this interactive map based on the index findings.

This article originally published at http://dc.urbanturf.com/articles/blog/trulia_still_cheaper_to_buy_than_rent_in_dc/3401

8 Comments

1. Richard said at 1:15 pm on Thursday April 28, 2011:

   I’ll second that! My mortgage and tax payments are $200 less per month than I was paying in rent.

1. PleasantPlainer said at 2:21 pm on Thursday April 28, 2011:

   Or, conversely, it’s a good time to be a landlord! The rent calculation may need a revision though. It says “Total costs of renting include rent and renter’s insurance.”, but “homeownership costs” includes benefits from tax deductions. Some states have a deduction for rent (Massachusetts did in 2005). Also, I think the rating should be influenced by unemployment. Take points off for “buy” for some measure of high unemployment, and add points to “rent”, and vice versa.

1. Yovi said at 2:39 pm on Thursday April 28, 2011:

   I’m glad UT continues to bring this news to discussion.  At Potomac Place Tower in SW we’ve done the math on the real life rent vs. own scenario without any funny stuff to make the numbers go our way.  So here it is in a nutshell. We compared rental rates in 4 new/renovated apartment buildings in the SW Waterfront and SE Riverfront neighborhoods. The average rent for a 589 sf studio is $1566 per month after concessions, plus an additional $135 per month parking fee and $25 per month amenities fee.  That’s a total of $1,726 per month in fixed rent - and then you have all utilities (which typically come to approximately $150 per month on average), plus $40 extra per month if you have a pet. Assuming you don’t have a pet but do like to bathe and watch TV on occasion, that would equal $1,876 fixed cost every month.  So for comparison, we have a studio unit for sale (S219) that is 621 sf and is listed at $203,000 including parking.  If you were to do a standard FHA purchase (3.5% down) with an interest rate of 4.9% for 30 years, your total estimated monthly payment (including PMI, taxes and condo fee which includes utilities) is $1,716 per month. 
   So what’s the benefit? Not just not the $10/m difference you see above.  Using the current mortgage interest deduction rate you could count on an additional $300 per month of tax savings, which would effectively make your monthly costs $1,416 per month.  This is now a no brainer!  Aside from this, inflation is here which means that those dollars you earn are worth less (think 10% inflation if you add in food and fuel) which makes renting that much more expensive every single month.  Feel free to give us a call 202.488.4153 for a more detailed explanation or email me at .(JavaScript must be enabled to view this email address) for true side by side comparison

1. Tom A. said at 3:20 pm on Thursday April 28, 2011:

   Only a fool would pay 1,726 per month (plus utilities) for a 589 sq foot foot studio near South Capitol St!

   So yeah, I guess a fool *would* save money in this scenario. 

   But if a person would be willing to pay upwards of 2k a month for renting, (which for a studio is probably at the very high end of the DC rental market) wouldn’t he or she want to purchase a home that costs a LOT more than 203k? (which is at the VERY bottom of the purchasing market)?

   I also think it’s inappropriate for management companies to rent a condo worth only 203k for around $2,000 a month to try to force people to buy one to “save” money.

1. Mt Pleasant said at 4:16 pm on Thursday April 28, 2011:

   Tom -

   I had the same thought you did. You would have to be retarded to pay over $1700 for a studio, AND IN SW DC! bahahahahaaha.

1. East H said at 9:40 am on Friday April 29, 2011:

   $1726 for a 586 square foot studio in SW?! How do you find people to take that deal?

   As to the “no brainer” comment, that’s patently ridiculous. There are all sorts of things to take into account—the biggest being locked into a living situation that isn’t easy to get out of, and a studio wouldn’t accommodate any life changes (marriage, kids, elderly parents, etc).

   $1726 per month would cover the mortgage on my 3 bedroom house in NE!

1. First timer said at 10:38 am on Friday April 29, 2011:

   I totally agree with you East H, that’s a lot of money in rent for a studio.  I checked and the buildings around here (I own in SW) are at 96% occupancy so they must be getting those rates.  As a 1st time homeowner and the owner of a studio, I knew I wasn’t going to be living in this for more than a couple of years but knew that if I didn’t resell my condo I would be okay.  Yovi’s comment above and UT’s post solidified that.  I only have about 3.5% equity in my place and if I rent it out a couple of years from now with POSITIVE cash flow it will be exactly what my parents taught me; buy real estate not to sell it but to OWN it.  If SW blows up like its supposed to - even if its 10 years from now- I will be earning income on a place I hardly put anything into in the meantime and then… I can sell much later when the neighborhood is tops in DC.  I can live with that!

1. Loving SW said at 1:35 pm on Saturday April 30, 2011:

   It seems like some of the people on this post don’t understand the idea of living in a condo, or potentially, a 5-7 year plan.  Most people purchasing at a $203K price point know this is not a forever home.  DC is so transient that a studio for a few years doesn’t need to include space for elderly parents or kids.  It’s a place to call home during a “stage of life”.
   The exercise “Yovi” mentions is pretty accurate.  I suggest those people who think the rental prices are ridiculous call around and see for themselves.  Not to mentioned SW is a great place to live with a tremendous amount of renovations going on.  Not sure I could/would say the same for NE…

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