12 cities: Where to rent vs. buy

Cities like Las Vegas and Miami boast killer buying opportunities, but you're better off renting in New York and Seattle, according to Trulia's quarterly Rent vs. Buy index.

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How to calculate if you should rent vs. buy
How to calculate if you should rent vs. buy
In Los Angeles, you're far better off renting than buying. But that's not true in all major cities.
Sure, the housing bust was a disaster for the nation's economy, ushering in the Great Recession and the more than doubling of the nation's unemployment rate. But it did have a plus side: more affordable homes.

Home prices dropped so severely in many markets that it completely changed the equation of whether to rent or buy in many cities, according to a report released Monday by Trulia, the real estate website.

"Many former homeowners have flooded the rental market," said Pete Flint, CEO and co-founder of Trulia. "Following the principles of supply and demand, renting has become relatively more expensive than buying in most markets."

To determine whether it makes more sound financial sense to rent or buy, economists generally use a rule of thumb: They divide the purchase price of a home by the annual rent of a similar property. Anything over a 15, and you should rent because it will cost you less over a period of time. Below 15? Start looking for homes.

This buy-rent ratio is a rough gauge with many other factors entering into the buying decisions of individual home seekers, including their income, property taxes and whether home values are likely to rise. Still, it is a good starting point for those in the market for a new home.

Of the 50 major cities covered by the Trulia report, 36 fell on the buy side of the equation. Another 10 were rated as being cheaper to rent.

NEXT: Las Vegas: Buy
Last updated January 25 2011: 8:31 AM ET
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