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By Michele Lerner
Forbes.com frequently works with data from a variety of sources to pull together lists of the best cities for recent college grads, best places for retirees or for employment. Recently reporter Francesca Levy worked with Witten Advisors to compile data to create a list of the “Top Ten Cities to Go From Renting to Buying”.
The article evaluates the “premium to buy” – the difference between what you would spend on renting and what you would pay each month for a mortgage, to find cities where that spread is narrower. In addition, Levy looked at economists’ predictions of locations in which home prices are anticipated to rise over the next five years.
The identified cities are not necessarily places where it is cheaper than renting, and sometimes they are places where buying is more expensive than renting. Instead, the list looks at places where buying is a better investment than usual.
Levy and Witten Advisors gathered data from the U.S. Census, the National Association of Realtors and an average of fixed and adjustable-rate mortgages from the Federal Housing Finance Agency to calculate the premium to buy in 42 different cities around the country. In addition, they factored in five-year housing price forecasts from the S&P/Case-Shiller Home Price Index from Moody’s Economy.com. The combination of a large premium drop for buying and a prediction of future home price increases landed the following cities on the top ten list of places to buy now:
- Boston-Cambridge-Quincy, Mass.
- Charlotte-Gastonia-Concord, N.C.-S.C.
- Chicago-Naperville-Joliet, Ill.-Ind.-Wis.
- Cincinnati-Middletown, Ohio-Ky.-Ind.
- Denver-Aurora-Broomfield, Colo
- Minneapolis-St. Paul-Bloomington, Minn.-Wis.
- Philadelphia-Camden-Wilmington, Pa.-N.J.-Del.-Md.
- Portland-Vancouver-Beaverton, Ore.-Wash.
- San Francisco-Oakland-Fremont, Calif.
- Washington-Arlington-Alexandria, D.C.-Va.-Md.-W.V.
As an example, Levy says that the premium to move from renting to owning a home in the Washington, D.C. metro area dropped to 37% from the usual 57% premium. In addition, because of plentiful government jobs and lower-than-average unemployment, housing prices are anticipated to jump by 15% over the next five years.
Of course, investors need to carefully evaluate the rental rates to make sure the price they pay for real estate can be matched by rental income. But anyone would agree that rising home values make a real estate investment appealing.
Michele Lerner, a real estate expert and freelance writer with 20 years of experience, is the author of “HOMEBUYING: Tough Times, First Time, Any Time”. |
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