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.