Walletwyse 2019 Rent vs. Buy Index

Dec 31, 2018


Fundamentally, a rent vs. buy index for a particular market tells us whether to expect a higher rate of return on investment by buying and maintaining a home or by renting and investing the difference. Factors considered include typical home vs. rental prices, interest rates vs. the rate of return on investments, upfront & ongoing costs, as well as tax considerations (property, capital gains, and even the vanishing mortgage-interest deduction).


Our goal in publishing this analysis is to assist with the financial part of the rent vs. buy decision by structuring a large amount of high-quality data into an easily-digestible visualization that compares relative buy vs. rent levels among U.S. cities. We evaluated & incorporated buy vs. rent data published by Smartasset.com; Numbeo; Beracha, Hardin & Johnson; Trulia; & Zillow.

The calculations for a rent vs. buy index are relatively established, so it was no surprise that each of the five datasets we evaluated used a similar approach. First, they examined average rent and sale prices for the same types of property. Next, they determined the initial and ongoing costs for both renting and owning. After accounting for one-off costs, each firm then looked at net present value to determine the long-term investment value of owning a home vs. renting an apartment and investing the savings.

Because our goal was to create an apples-to-apples comparison among datasets, our first step after gathering the different data was to find the standard deviation of each city's score using the mean value of that set. Next, we normalized the datasets to a consistent 1-10 scale (5 = the statistical U.S. mean). Scores to the right of the mean (greater than 5) indicate markets where owning is comparatively more expensive than renting. Scores to the left of the mean (less than 5) indicate markets where owning may be financially advantageous.

When selecting cities, our criteria was that there be data available from at least two, but preferably three or more individual datasets. The length of the horizontal green bar illustrates the range, from min to max, of the datapoints used for that city. The yellow bar marks the statistical mean. As a rule of thumb, the shorter the bar, the greater the consensus on the rent vs. buy situation for that particular city, especially when there are a higher number of datapoints (given in the tooltip).

Closing Thought

The question not answered by a rent vs. buy index is more subjective: whether owning a home adds - or subtracts - a measure of personal satisfaction & security sufficient to tilt the balance in the other direction, financial considerations be damned.