Try telling those renting in Miami that they're throwing away money. They'd argue that renting, on average, is much cheaper than buying these days — $1,080 a month to rent compared to $1,767 a month to pay down a mortgage. What's more, new construction is up 40 percent this year, practically guaranteeing that rent will remain relatively low.
That's enough to make Miami No. 2 on our list of the best cities to rent a home. It tied with Denver and Milwaukee, Wis.; Tucson, Ariz., wasn't far behind.
They boast conditions that may be driving more Americans to choose tenancy over homeownership.
Topping this year's list is Orlando, Fla.
While the number of owner-occupied homes in the first quarter of 2008 (75 million) is virtually flat from the first quarter of 2007, renter-occupied units have increased by nearly 3 percent to 35.7 million, according the U.S. Census Bureau.
In a soft market, possible home buyers may choose to rent instead of paying a down payment, for fear of losing money on their investment. Others may have trouble saving enough for a down payment.
Tom Brink, vice president and co-leader of the residential sector at global design practice RTKL, based in Dallas, says that Millenials — or children of the baby boomers — aren't earning enough to buy up existing inventory.
"Unlike their parents, who bought up condos a few years back with luxury amenities, this generation is still being paid entry-level salaries," says Brink. "They can't afford a down payment on a home."
Other than the money it saves folks initially, renting has other advantages. For one, maintenance fees are included in each monthly outlay, which means there is no need to hire a plumber if the toilet overflows.
What's more, the hidden costs associated with buying a home, such as condominium association fees and annual upkeep, are factored out.
To compile our list of the best cities for renters, we considered three measurements in the country's 40 largest metropolitan areas: the annual change in monthly rent, the percent increase of new rental construction in 2008, and the percent difference between the area's average monthly rental payment and the average monthly mortgage payment (assuming that the down payment was 10 percent and the fixed interest rate is 6.25 percent). All rental data was supplied by Encino, Calif.-based real estate brokerage firm Marcus & Millichap. Mortgage data was provided by the National Association of Realtors, a trade group based in Washington, D.C.
Rent increases showed us which cities' rental markets were tightening, a bad sign for tenants. In San Francisco — No. 22 on our list — monthly rents rose an average 8.6 percent to $1,904 a month, claiming the highest year-over-year increase in the country.
Construction rates indicate what price hikes would be like in 2008 and beyond. In Chicago, which ranked No. 10, construction rates this year are up 400 percent, which means that in the next few years, there should be more space to rent, which should also mean fees will remain affordable.
The percent difference between the average monthly rental payment and the average monthly mortgage payment helped us determine where it is cheaper to rent and where it is cheaper to buy. In No. 40 Cleveland, for example, it's actually cheaper to buy than rent. Here, the average rent is $702 a month, while the average mortgage payment is only $566. In Las Vegas, No. 19, those figures are inverted. Renters there pay just $836 per month compared to $1,372 for a monthly mortgage payment.
It's no surprise that four Florida cities showed up in our top ten. Kermit Baker, a senior research fellow at the Harvard Joint Center for Housing Studies, says that Orlando, Miami, Jacksonville and Tampa have been overbuilt. Since nobody is buying, developers are renting out the condos in order to make a return on their investment.
"Those are going to be the markets that are pretty advantageous for renters," says Baker. He also says that until the market stabilizes a bit, it's better to keep on renting.
In all of our top ten cities, rent is infinitely cheaper than paying down a mortgage. In Portland, Ore., for example, it costs $772 a month to rent a home, compared to $1,588 for a monthly mortgage payment. Even if you've got the money for a down payment, those monthly bills add up.
However, if you're set on buying a home, Bernard Markstein, senior economist and director of forecasting at the National Association of Homebuilders — a Washington, D.C.-based trade organization — still believes it's a good time, if you're ready. The sorts of deals on the market right now — extra amenities and reductions on closing costs — are eventually going to dissipate. The key is to only buy if you plan on spending at least seven years in the home. That's how long it takes for most buyers to see a return, or to at least break even. If you're looking to make a quick buck, now is not the time.
"The American Dream is still there," says Markstein, "but buying is not the right situation for every person at every time in their lives."