Doing the math
Andres Carbacho-Burgos, a Moody’s economist, said there’s little doubt that renting in South Florida was a better bet during the peak years of 2005 and 2006.
“What has happened since then is the housing prices have come down by a lot more than the costs to rent an apartment,” he said.
To illustrate that, Carbacho-Burgos looks to a price-rent ratio that considers the buy-versus-rent question in a more mathematical way. The ratio is calculated by taking the median cost to buy a home and dividing it by the annual cost to rent.
A price-rent ratio less than 20 is generally considered a sign that it is better to buy.
For example, if the annual rent on a three-bedroom, one bathroom home is $15,000, and a similar home is selling for $200,000, the rent ratio is 13, favoring buying as the better option.
According to Moody’s, the average price-rent ratio using apartment rents in 2006 in Palm Beach County peaked at 31 but was down to 18 in the first quarter of this year.
But that number isn’t perfect. Theoretically, the calculation should use home rental rates, which aren’t easily available in a uniform format for specific areas.