The Paper of Record Says It’s Time to Buy in DC

by Mark Wellborn

The national newspaper of record (with some help from Moody’s) has concluded that DC residents are better off buying a home rather than renting one.

The New York Times had an article recently that analyzed whether or not it was better for residents in a number of the country’s largest cities to rent or buy. Here is how the determination for each city was reached:

A simple way to do the comparison is to look at something called the rent ratio: the purchase price of a house divided by the annual cost of renting a similar one. The number 20 provides a useful rule of thumb. When you do the math, you discover that a ratio above 20 means you should at least consider renting, especially if you may move again in the next five years or so. When the ratio is well below 20, the case for buying becomes a lot stronger.

The price-rent ratio for DC was 18.6, putting it just in buying territory. In April 2009, the price-rent ratio for the DC region was 21.5, just inside bubble territory. Five years ago, DC was solidly in rent territory at 29.2.

Needless to say, a number of other factors go into whether or not an individual should buy or rent, but the price-rent ratio is an important (but often overlooked) metric because it assesses real estate prices according to basic supply-demand fundamentals.

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This article originally published at https://dc.urbanturf.com/articles/blog/the_paper_of_record_says_its_time_to_buy_in_dc/1998


  1. Yorkville said at 1:18 pm on Thursday April 22, 2010:

    Isn’t the price-rental ratio just the inverse of the cap rate? A price-rental ratio of 20 converts to a cap rate of 5%. That seems low for a cap rate when you factor in expense, tax.

  1. UnoTres said at 1:58 pm on Thursday April 22, 2010:

    This is great news. The norm I believe in the DC area is 15 to 1. Meaning for a 150k purchase you should get 10K a year rent. So basically rents need to go up and home prices need to come down to which I think both have been happening in the DC area.

  1. ml said at 2:21 pm on Thursday April 22, 2010:

    Doesn’t the article say a ratio of 20 or higher means buy, and DC comes in at 18.6?  Wouldn’t that mean the article indicates that renting is better?

  1. UnoTres said at 3:13 pm on Thursday April 22, 2010:

    No that is not how it works. 5 years ago we were at 29.2. That means renting is far more affordable than buying. The equivalent of paying 292K on a house and only collecting 10K in rent. Today we are at 18.6 which means a 186K home purchase collects 10K in rent. Does that make sense?

  1. ml said at 1:46 am on Friday April 23, 2010:

    UnoTres, yes, thanks.

Comments are closed.

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