Rent or Buy: The Magic Of The Number 20May 11, 2011 4:46 pm
So we’ll get you the summary first – If the sale price of houses in your area is not more than 15 times your annual rent, you should go ahead and buy a house.
– “A rent ratio is the sale price of a house divided by the annual cost of renting an equivalent house. When the ratio is below 15, most people should lean toward buying.
As a rule of thumb, a ratio above roughly 20 means that a monthly mortgage bill is higher than rent for a similar house.”
More from the NYTimes:
“To see why, look at the Atlanta area, where the average ratio is now about 13. Combined with today’s low interest rates, that ratio means that the typical monthly mortgage payment is several hundred dollars lower than the rent on an equivalent house. Over time, this difference helps make up for the other costs of owning, like closing costs and borrowing costs. And, yes, a mortgage costs money, despite the tax deduction.”
Statistics Source: NYTimes