Sue Fox, @Properties. Direct 773.816.1788
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In Chicago, buying a home now beats renting
CHICAGO ON SALE: A new report on home prices shows that buying is a better bargain than renting in Chicago. Home buyers seem to realize this, if the surge in recent sales is any indication.
Looks like home prices in Chicago have declined to the point that buying is now a better financial deal than renting, according to a front-page story in the New York Times that analyzed home prices in various cities.
“In some once bubbly markets, prices have fallen so far that buying a home appears to be a bargain,” the newspaper reported (read the full story here). Chicago — along with New York, Los Angeles, Houston, Dallas, Atlanta and south Florida — is among the major metropolitan areas where buying now makes more economic sense than renting a similar home.
A simple method for comparing buying vs. renting is called the rent ratio: the price of a home divided by the annual cost of renting a similar one. If the rent ratio falls below 20, buying becomes a better option. In Chicago, the rent ratio is now just 15.9, according to the Times analysis, lower than most of the other major cities surveyed. (In fact, only a handful of cities have ratios below 14, including such hard-hit cities as Las Vegas, Detroit and Pittsburgh.)
“In most markets, you’re better off buying,” Thomas Lys, an accounting professor at Northwestern, told the Times. “But once the ratio gets to 25 or 30,I’d say, ‘You know what? There may be a bubble.’”
In Chicago, whatever housing bubble we saw here never inflated as fast or as far as what coastal cities like Los Angeles or Miami experienced. Still, prices have fallen considerably. Chicago’s rent ratio was 24.3 in 2005.
This report backs up what Chicago real estate agents have been seeing on the ground: Plenty of smart buyers snapping up properties at great prices, and locking in low interest rates to boot.
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