Time to buy home in LA according to Rent v. Buy Index

Have you heard of Trulia’s Rent vs. Buy Index? It tracks whether it is more affordable to rent or buy a home in America’s 100 largest metropolitan areas.

Here’s how it works. They calculate the Price-to-Rent Ratio Calculation: Asking Sale Price divided by (Asking Monthly Rent x 12)

Asking Sales Price: $400,000
Asking Monthly Rent: $3000
Price-to-rent ratio: $400,000 divided by ($3,000 x 12) = 11.1

Lower the ratio, more favorable it is to buy vs. rent. Anything below 15, buying a home is a better deal for people planning to live in a home for at least 5 years. A ratio between 15-20, the benefit of buying vs. renting depends on the prospective homeowner’s tax bracket and if they plan to itemize their tax deductions.

Using figures for the market between December 1, 2011 – February 29, 2012, Trulia calculated the price-to-rent ratio for Los Angeles to be 13.0: in general, better to buy if prospective homeowner plans to stay for at least 5 years in their new home.

Reference Source: Trulia