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Thread: Rent/Own Ratios - A Tale of Two Cities

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  1. #1
    Join Date
    May 2007
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    Portland, OR
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    1,245

    Default Rent/Own Ratios - A Tale of Two Cities

    A comparison of rent/own ratios between Portland, OR and Cleveland, OH

    As many of you who have been around here a while know, I sold my house in Portland a couple years ago and have been renting since then. I decided to take a look at the costs of renting vs owning, though I knew from my own experience that renting in Portland is currently cheaper.

    The spaghetti is fairly simple, but the numbers behind the series are complicated. If you care about the details, read the text box; it tries to summarize the calculations I went through. These are all hypothetical scenarios for the imaginary median family buying the median house or in the median rental. Any individual real-world scenario would of course vary, including factors such as additional itemized deductions, differences in actual home maintenance costs and property taxes, actual mortgage rates and loan terms, etc.

    This chart shows the ratio between monthly ownership costs and monthly fair market rent. So a ratio of 1.0 would mean they are equal, a ratio of 1.5 would mean "owning" is 50% higher than renting, and so forth.



    As a further exercise, I created a second chart exploring three different buy-and-hold scenarios. The first series looks at buying a home in Portland in 1987, when the rent/own ratio was at its lowest point within the years surveyed. The second series shows buying in 2004, shortly before the final stages of the bubble. The third series shows buying at the peak in 2007. As you can see, only the first scenario is on par with or cheaper than renting, based on my calculations.



    For a comparison city I chose Cleveland, Ohio, which has a roughly similar metro population and median income history, but did not experience the exuberant run-up in home prices.

    A caveat on the home price data for Cleveland: The Portland RMLS publishes a detailed monthly report (this Oregonian article has a link to a recent example). Trying to find this kind of data for other cities, especially a consistent historical series going back more than a couple years, has always been a frustration for me. Therefore, I pulled Cleveland home prices from quarterly IHS Global Insight reports (here's an old thread with a couple of them) and combined them with the monthly Case-Shiller index for Cleveland to create a continuous series.



    For Cleveland, the first scenario also starts in 1987, a relative low point in the ratios but actually higher than the equivalent Portland scenario. I put the second scenario at the Cleveland peak in 2006, and the third scenario at the historical (in this range of years) low ratio point in early 2009.





    P.S. I apologize for not participating much in the past few months. My life outside iTulip has been somewhat derailed. That's all I care to say in a public forum. It is impossible to catch up on all the discussions when I do not visit the site regularly, so I have missed a lot.
    Last edited by zoog; 02-24-10 at 02:07 PM. Reason: relinked first chart

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