Trulia: Cheaper to Buy Than Rent in DC

• January 24, 2011
• 18 Comments

by Mark Wellborn

According to an analysis from real estate search website Trulia.com, it is currently cheaper to buy a home than rent one in 72 percent of the 50 largest cities in the country, including DC.

Trulia’s Rent vs. Buy Index, which launched last June, 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, 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.

Sandwiched between Detroit and Indianapolis, DC scored a 12 on the Trulia scale, which means that it is one of the cities where it is much less expensive to buy than to rent. (Maybe this is why experts are expecting rent increases over the next few years.) The data used to produce this score — based on properties in DC proper — was a median monthly rent of $2,835 and a median list price of $401,399. For comparison, New York and San Francisco (which scored 31 and 21, respectively) are cities where you should continue to rent, according to Trulia.

While the index does provide 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. “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_cheaper_to_buy_than_rent_in_dc/2892

18 Comments

1. Simon said at 9:05 pm on Monday January 24, 2011:
   Am I understanding this right? Does DC's score (12) mean that monthly rent x 144 should be greater than or equal to what the average list price for a comparable unit should be? Because if that's the case, then I think something is wrong with the calculation. My rent is about 1600 a month, but there's zero chance that I could buy my place for anything near $230,000. Similarly, 2BR units in my neighborhood tend to go for the mid-$400Ks and rent for the mid-to-high $2000s, which implies a "score" higher than 12.

1. Mark Wellborn said at 9:21 pm on Monday January 24, 2011:
   Simon, To get DC's score, Trulia took the median two-bedroom rent for all of DC proper ($2,835) multiplied that by 12 ($34,020) and then divided that number into the median list price for a two-bedroom unit ($401,399) to get a score of 12. All data provided by Trulia. Hope that helps, Mark Wellborn Editor

1. Chris said at 10:44 pm on Monday January 24, 2011:
   Quite the interesting index. You would imagine that it'd be more affordable to rent everywhere, but looks like that's no longer the case.

1. Simon said at 11:07 pm on Monday January 24, 2011:
   Thanks Mark. That rent seems too high for the purchase price, or vice versa. For example, I can see renting a 2BR for something around $2800 in Adams Morgan, but have a hard time imagining finding a condo for that price . . .

1. Lauren said at 11:27 pm on Monday January 24, 2011:
   I agree, I think a $2800 2BR apt would sell for more like $450k so it seems like trulia's data isn't very trustworthy.

1. Liz said at 11:32 pm on Monday January 24, 2011:
   Just goes to prove that there are lies, damn lies, and statistics -- I suspect that the median rental unit in DC is in a more desirable area that the median unit for sale. Based on Trulia's formula, I took the price of several 2 bedrooms for sale in my neighborhood, and for a score of 15, they would have to rent for between $3500 and $4700 a month ((price/15)/12 = rent). Not even close. Believe the hype at your peril.

1. ER said at 11:48 pm on Monday January 24, 2011:
   Proof that the numbers are fairly on point: I bought a two bedroom in u street area for 530K this past summer and pay $2,650 a month in mortgage payments. Before I bought it, it was being rented for 2,750 a month.

1. Lauren said at 11:54 pm on Monday January 24, 2011:
   @ ER, that actually shows the numbers are out of whack if your experience is typical. Your rent was sightly lower than trulia's median but purchase price was much higher than their figure of $400,000.

1. Simon said at 12:41 am on Tuesday January 25, 2011:
   I presume the "rule of 15" accounts for both the financial upsides of home ownership (equity accrual, tax benefits) and the financial downsides (maintenance, fees, taxes, &tc😉, which can sometimes make simple comparisons of "rent" v. "mortgage payment" a bit misleading. In any event, I remain skeptical that purchasing in DC is such a better deal than renting. Trulia's numbers may be accurate, so far as they go, but they lead to misleading conclusions, perhaps for the reasons Liz suggests.

1. jeffrey said at 6:40 am on Tuesday January 25, 2011:
   buying vs renting is not just a financial equation. homeownership brings a lot of benefits and a lot responsibilities. Tenant laws are strong in DC to the benefit of tenants. Incomes are high and stable in DC so being a home owner can be supported by your pay. I have bought and remodeled a few homes since 2008. I think right now there is still a great opportunity to buy some distress bank owned properties in the right neighborhoods and build the foundation of your re empire in DC. I am focused on the SE quarter, lots of great things going on in some cool edge neighborhoods that are a bargain compared to the NW. Don't forget maintenance costs!

1. ER said at 2:26 pm on Tuesday January 25, 2011:
   If you put 20 percent down on a $400,000 property at 4.8% and say have $225/month condo fee and $250 in monthly property taxes, your payments end up being about $2,170 a month, so $700 less than the median rent for a two-bedroom, according to Trulia. Using the same interest rate, down payment, condo fee numbers and property taxes from above but upping the list price to $520,000 (more realistic for a DC two-bedroom), your monthly payments still only come out to approx. $2,650

1. Wendy said at 4:23 pm on Tuesday January 25, 2011:
   My rent (sharing a three-bedroom house was $750 + $150-ish a month for utilities. I bought a one-bedroom condo at short sale in Kingman Park for $99000 with 20% down last May. My payments including principal, interest, taxes, and insurance are $640, my condo fee is $160, and my utilities usually come in around $100/month. The deals are out there if you're willing to seek them out.

1. aj said at 4:26 pm on Tuesday January 25, 2011:
   @simon and @lauren I live in a 2 br condo in Adams Morgan that I bought in 2009. my mortgage and condo fees together are $2750. It's a nice place - hardwoods, remodeled kitchen, central air, etc. so it seems like the data is indeed trustworthy.

1. Mark said at 9:30 pm on Tuesday January 25, 2011:
   I am confused. You said: "it is one of the cities where it is much less expensive to buy than to rent. (Maybe this is why experts are expecting rent increases over the next few years.)" If it is much LESS expensive to buy rather than rent, wouldn't rent be expected to decrease? Thanks in advance.

1. lauren said at 10:11 pm on Tuesday January 25, 2011:
   My point, and Simon's I think, was that Trulia's medians don't seem to match up. $2800 / $400,000 for a 2BR apartment / condo. I just don't think you can be talking about the same type of housing with those numbers. $400,000 sounds like an average sale price for a 2BR across all of DC, so everywhere from Dupont to Deanwood. Whereas $2800 is on the high side, like they're only looking at rentals in NW, or only in new buildings or something.

1. BD said at 10:19 pm on Tuesday January 25, 2011:
   It would be interesting to do some neighborhood-wide comparisons as opposed to the city-wide one. Creating an index out of a couple of average numbers without giving much reasoning behind it is marketing at its best, and shady at worst. This index will fluctuate wildly, and doesn't seem to be anything more than marketing spin. I'd need to see something much more convincing than what the fine article claims. I agree with Simon. There's a lot more to factor into this equation.

1. SP said at 1:17 am on Friday January 28, 2011:
   I think if you live in a very expensive neighborhood (Dupont, Georgetown, Capitol Hill, etc.), it's more feasible to rent than to buy. And in a less developed neighborhood, vice versa. Where people can really make out is in the neighborhoods that have almost transitioned - north of U street between 10th and 14th, there are a bunch of abandoned properties. If I had extra money, I would snatch these up at a DC tax sale, throw in some hardwood floors and granite countertops, sell or rent at high prices, and take a year off in the Caribbean. =) Just sayin.

1. Jim said at 10:16 pm on Wednesday March 30, 2011:
   I'm confused, Mark. When I pulled up the document linked to on the trulia site, it indicated an index of 14. The average list price given is $469,150 and the rent was listed at $2,773. Not sure where the difference is from, unless the data has been updated.