Home Ownership, Rental Costs, Prospects of Building Home Equity
An Analysis of 100 Metropolitan Areas in the United States
Hye Jin Rho, Danilo Pelletiere and Dean Baker
May 2008
Center for Economic and Policy Research
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National Low Income Housing Coalition
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The bubble that developed in the U.S. housing market from the years 1996 to 2006 pushed prices in many markets far out of line with fundamental values. The correction that began in the middle of 2006 has helped to bring house prices back in line with their long-run trend growth path. Nonetheless, house prices in some of the most inflated markets are still hugely out of line with rents and income.
This paper compares ownership and rental costs in the 100 largest metropolitan areas. It also makes projections for the potential for accumulating home equity in these markets, assuming that a homeowner remains in their home for four years, the median holding period for moderate income households.
Ownership and Rental Costs: A Historical Perspective
As explained in our earlier paper, house prices nationwide have typically risen at approximately the same rate as the overall pace of inflation. Over most of the 20th century, from 1895 to 1995, there was virtually no change in real house prices. Beginning in 1995, house prices began to hugely outpace inflation as the speculative bubble in the stock market spilled over into the housing market.
It should have been easy to see that this bubble could not be sustained, since the fundamentals in the housing market had not changed, as demonstrated clearly by the fact that there was no remotely comparable increase in rents over this period. As a result, sale prices rose to levels where they were hugely out-of-line with rents. At a ratio of sales price to annual rent of 15 to 1, ownership costs are roughly comparable to rents. At the peak of the bubble, the ratio of ownership costs to rents of comparable units crossed 20 to 1 and even 25 to 1, in the most inflated markets. For purposes of analysis, this paper treats a ratio of 15 to 1 as being an equilibrium sale price, and defines a bubble market as one in which the ratio of sale price to annual rent exceeds 18 to 1.
Ownership and Rental Costs in 2008
The basic comparison of ownership and rental costs is shown Table 1. These comparisons use calculations based on 75 percent of the median house sale price, based on data from the Census Bureau’s American Community Survey, for ownership costs. The low, middle, and high cost scenarios assume 6 percent, 7 percent, and 8 percent thirty-year fixed rate mortgages, respectively
100 Cities Comparison - Rank by Population -- Monthly -- List of Cities Ownership Costs Rental Costs (Metropolitan Statistical Areas) Low Middle High 2Bed 3Bed 1 New York-Northern New Jersey-Long Island, NY-NJ-PA MSA $2,415 $2,756 $3,245 $1,318 $1,621 2 Los Angeles-Long Beach-Santa Ana, CA MSA $3,054 $3,485 $4,104 $1,300 $1,746 3 Chicago-Naperville-Joliet, IL-IN-WI MSA $1,335 $1,524 $1,794 $944 $1,154 4 Dallas-Fort Worth-Arlington, TX MSA $758 $865 $1,019 $871 $1,156 5 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD MSA $1,227 $1,400 $1,649 $932 $1,116 6 Houston-Sugar Land-Baytown, TX MSA $710 $810 $954 $852 $1,136 7 Miami-Fort Lauderdale-Pompano Beach, FL MSA $1,636 $1,867 $2,198 $1,035 $1,324 8 Washington-Arlington-Alexandria, DC-VA-MD-WV MSA $2,303 $2,627 $3,094 $1,324 $1,708 9 Atlanta-Sandy Springs-Marietta, GA MSA $991 $1,131 $1,332 $824 $1,003 10 Boston-Cambridge-Quincy, MA-NH MSA $2,051 $2,340 $2,755 $1,353 $1,618 11 Detroit-Warren-Livonia, MI MSA $850 $970 $1,142 $805 $963 12 San Francisco-Oakland-Fremont, CA MSA $3,637 $4,149 $4,887 $1,592 $2,125 13 Phoenix-Mesa-Scottsdale, AZ MSA $1,343 $1,532 $1,804 $862 $1,256 14 Riverside-San Bernardino-Ontario, CA MSA $1,917 $2,187 $2,576 $1,142 $1,622 15 Seattle-Tacoma-Bellevue, WA MSA $1,921 $2,192 $2,581 $942 $1,331 16 Minneapolis-St. Paul-Bloomington, MN-WI MSA $1,236 $1,411 $1,661 $848 $1,110 17 San Diego-Carlsbad-San Marcos, CA MSA $2,771 $3,162 $3,724 $1,355 $1,976 18 St. Louis, MO-IL MSA $816 $930 $1,096 $711 $916 19 Tampa-St. Petersburg-Clearwater, FL MSA $1,008 $1,150 $1,354 $883 $1,119 20 Baltimore-Towson, MD MSA $1,600 $1,826 $2,150 $1,013 $1,301 21 Denver-Aurora, CO MSA $1,274 $1,454 $1,712 $876 $1,244 22 Pittsburgh, PA MSA $596 $680 $801 $666 $828 23 Portland-Vancouver-Beaverton, OR-WA MSA $1,462 $1,668 $1,964 $757 $1,102 24 Cincinnati-Middletown, OH-KY-IN MSA $795 $907 $1,068 $726 $972 25 Cleveland-Elyria-Mentor, OH MSA $767 $876 $1,031 $725 $929 26 Sacramento-Arden-Arcade-Roseville, CA MSA $1,973 $2,251 $2,651 $982 $1,417 27 Orlando-Kissimmee, FL MSA $1,232 $1,405 $1,655 $915 $1,146 28 San Antonio, TX MSA $597 $681 $802 $780 $1,006 29 Kansas City, MO-KS MSA $805 $919 $1,082 $754 $1,020 30 Las Vegas-Paradise, NV MSA $1,575 $1,797 $2,116 $996 $1,382 31 San Jose-Sunnyvale-Santa Clara, CA MSA $3,778 $4,311 $5,077 $1,293 $1,859 32 Columbus, OH MSA $847 $967 $1,138 $718 $903 33 Indianapolis-Carmel, IN MSA $745 $850 $1,001 $726 $939 34 Virginia Beach-Norfolk-Newport News, VA-NC MSA $1,211 $1,381 $1,627 $904 $1,247 35 Charlotte-Gastonia-Concord, NC-SC MSA $873 $996 $1,173 $740 $932 36 Providence-New Bedford-Fall River, RI-MA MSA $1,573 $1,795 $2,114 $1,020 $1,221 37 Austin-Round Rock, TX MSA $925 $1,055 $1,243 $935 $878 38 Milwaukee-Waukesha-West Allis, WI MSA $1,045 $1,192 $1,404 $795 $1,002 39 Nashville-Davidson-Murfreesboro-Franklin, TN MSA $868 $990 $1,166 $723 $938 40 Jacksonville, FL MSA $997 $1,137 $1,339 $816 $1,024 41 Memphis, TN-MS-AR MSA $665 $758 $893 $743 $990 42 Louisville-Jefferson County, KY-IN MSA $748 $853 $1,005 $663 $926 43 Richmond, VA MSA $1,102 $1,257 $1,480 $870 $1,161 44 Oklahoma City, OK MSA $598 $683 $804 $641 $865 45 Hartford-West Hartford-East Hartford, CT MSA $1,307 $1,492 $1,757 $985 $1,183 46 Buffalo-Niagara Falls, NY MSA $557 $636 $748 $704 $871 47 Birmingham-Hoover, AL MSA $706 $806 $949 $690 $876 48 Salt Lake City, UT MSA $1,164 $1,328 $1,564 $754 $1,061 49 Raleigh-Cary, NC MSA $1,013 $1,156 $1,361 $797 $1,002 50 Rochester, NY MSA $626 $715 $842 $773 $928 51 New Orleans-Metairie-Kenner, LA MSA $898 $1,024 $1,206 $990 $1,271 52 Tucson, AZ MSA $1,069 $1,220 $1,437 $769 $1,110 53 Tulsa, OK MSA $611 $697 $820 $666 $880 54 Honolulu, HI MSA $2,921 $3,332 $3,924 $1,630 $2,377 55 Fresno, CA MSA $1,438 $1,640 $1,932 $805 $1,171 56 Bridgeport-Stamford-Norwalk, CT MSA $2,658 $3,033 $3,572 $1,171 $1,399 57 Albany-Schenectady-Troy, NY MSA $923 $1,053 $1,240 $851 $817 58 New Haven-Milford, CT MSA $1,400 $1,598 $1,882 $1,142 $1,367 59 Dayton, OH MSA $667 $761 $897 $678 $913 60 Albuquerque, NM MSA $907 $1,035 $1,219 $760 $1,107 61 Omaha-Council Bluffs, NE-IA MSA $732 $835 $983 $710 $948 62 Allentown-Bethlehem-Easton, PA-NJ MSA $1,074 $1,226 $1,443 $816 $1,056 63 Oxnard-Thousand Oaks-Ventura, CA MSA $3,120 $3,560 $4,192 $1,422 $2,038 64 Bakersfield, CA MSA $1,225 $1,398 $1,647 $679 $981 65 Worcester, MA MSA $1,515 $1,728 $2,035 $965 $1,154 66 Grand Rapids-Wyoming, MI MSA $739 $843 $993 $702 $896 67 Baton Rouge, LA MSA $722 $824 $970 $758 $966 68 El Paso, TX MSA $491 $560 $660 $567 $813 69 Columbia, SC MSA $661 $755 $889 $692 $855 70 McAllen-Edinburg-Mission, TX MSA $355 $405 $476 $609 $730 71 Akron, OH MSA $741 $845 $995 $743 $945 72 Greensboro-High Point, NC MSA $707 $807 $950 $719 $911 73 Sarasota-Bradenton-Venice, FL MSA $1,231 $1,405 $1,655 $1,002 $1,280 74 Springfield, MA MSA $1,094 $1,248 $1,470 $844 $1,010 75 Knoxville, TN MSA $751 $857 $1,009 $633 $848 76 Stockton, CA MSA $1,889 $2,155 $2,538 $914 $1,255 77 Poughkeepsie-Newburgh-Middletown, NY MSA $1,673 $1,909 $2,248 $1,103 $1,352 78 Little Rock-North Little Rock-Conway, AR MSA $628 $717 $844 $678 $908 79 Toledo, OH MSA $677 $773 $910 $656 $846 80 Syracuse, NY MSA $557 $635 $748 $713 $913 81 Charleston-North Charleston, SC MSA $958 $1,093 $1,287 $823 $1,072 82 Greenville-Mauldin-Easley, SC MSA $688 $785 $924 $649 $857 83 Colorado Springs, CO MSA $1,093 $1,248 $1,469 $797 $1,137 84 Wichita, KS MSA $576 $657 $774 $622 $796 85 Cape Coral-Fort Myers, FL MSA $1,236 $1,410 $1,660 $886 $1,204 86 Boise City-Nampa, ID MSA $996 $1,136 $1,338 $660 $960 87 Lakeland, FL MSA $730 $833 $981 $745 $945 88 Youngstown-Warren-Boardman, OH-PA MSA $525 $599 $705 $587 $739 89 Madison, WI MSA $1,161 $1,325 $1,560 $807 $1,083 90 Scranton-Wilkes-Barre, PA MSA $624 $712 $839 $627 $795 91 Des Moines-West Des Moines, IA MSA $772 $881 $1,038 $732 $938 92 Palm Bay-Melbourne-Titusville, FL MSA $1,016 $1,159 $1,365 $815 $1,098 93 Jackson, MS MSA $619 $706 $832 $747 $899 94 Harrisburg-Carlisle, PA MSA $806 $920 $1,083 $722 $911 95 Augusta-Richmond County, GA-SC MSA $600 $685 $806 $654 $876 96 Ogden-Clearfield, UT MSA $1,002 $1,143 $1,346 $692 $952 97 Chattanooga, TN-GA MSA $670 $764 $900 $639 $787 98 Portland-South Portland-Biddeford, ME MSA $1,248 $1,424 $1,677 $1,036 $1,305 99 Modesto, CA MSA $1,640 $1,871 $2,204 $864 $1,239 100 Deltona-Daytona Beach-Ormond Beach, FL MSA $985 $1,124 $1,324 $845 $1,093 Source: Census Bureau, HUD, and authors’ calculations *Fair Market Rent (FMR)
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