Economists' Outlook

Housing stats and analysis from NAR's research experts.

Price-to-Rent Ratios by State from 2014-2019

The coronavirus pandemic continues to impact businesses, workers, and people’s major and everyday decisions and way of life. One important decision is where people will be living and moving to, given the opportunity to work from home and the resurgence of the coronavirus and other health epidemics in the future. In considering where to move, potential home owners and renters have to keep their fingers on the pulse of home price and rent growth as a consideration to determine where they move. There may be changes in purchaser preferences on where they live due to the impacts of the current virus―will people want to live in less populated areas or maybe they want a bigger space due to the ability to telework? These factors will be determined over the next few years, but one factor that will figure out in people’s decision where to move is how affordable owning a home is compared to renting. One indicator of affordability the home price to rent ratio. In this blog, we discuss the price-to-rent ratios over time.

Price-to-Rent Ratio as Measure of Rent-Buy Decision

The price-to-rent ratio is calculated by dividing the median home price by the median yearly rent and the formula for the price-to-rent ratio is: Median Property Value/ (Monthly Rent x 12 months). A higher price to rent ratio means that the buying a home (property value) is a higher multiple of the rent. As the price to rent ratio rises, the buy-rent decision tilts away from buying towards renting.

One drawback of the price-to-rent ratio is that it does not consider the changes in mortgage rate. So even if home prices are rising, the mortgage payment can still fall due to lower mortgage rate. However, rising prices means that the buyer also has to make a bigger down payment, which can deter a home purchase.

The median property value from the US Census Bureau’s American Community Survey for 2014 to 2018 was used in the calculation. Then, the FHFA Home Price Index was used to estimate the median property value for 2019. For apartment rent, we used rent data from[1] and compared the rents and median prices of 2014 to 2019, as well as the rent to price ratio of 2014 and 2019 and calculated the difference over time.

States with highest change in price-to-rent ratios from 2014 - 2019

Looking at the trend of price to rent growth over time starting from 2014 to 2019, the price to rent ratio increased in all states, except Connecticut. North Dakota led all states with the largest percentage point increase in the price-to-rent ratio (11.7 ppt) followed by Delaware (9.3ppt), Arkansas (8.5 ppt), North Carolina (7.9 ppt), Idaho (6.6 ppt), Utah (6.2 ppt), Montana (6.1 ppt), Colorado (5.7 ppt), Oregon (5.3 ppt), Maryland (5.2 ppt), and Maine (5.1 ppt). Connecticut was the only state with a decline in price to rent growth for this time at -0.2 percentage point.

However, the price-to-rent ratios did not change much in states such as Virginia (0.4), Arizona (0.5), Massachusetts (0.7) and New York (0.9). However, while home prices did not change much compared to rent growth during 2014 to 2019, home mortgage rates fell, so the lower mortgage rates still made buying a home more affordable than renting.

Home Price vs Renting

A rule of thumb is that a price-to-rent ratio of 1 to 15 indicates it is much better to buy than rent; a price-to-rent ratio of 16 to 20 indicates it is typically better to rent than buy, and a price-to-rent ratio of 21 or more indicates it is much better to rent than buy. Therefore, anything above 16 will not be affordable to buy.[2]

Let’s take a look at the top and bottom ten home price to rent ratios in 2019 to see how price may have an impact on the rent-buy decision. In 2019, these states had the highest price to rent ratios: Delaware, North Dakota, New Mexico, Maine, Arkansas, Alaska, Hawaii, Montana, Utah, North Carolina. In these states it will be more expensive to buy a home than rent.

Price to Rent Ratio table

These states were in the bottom 10 in price to rent ratio: Nevada, Texas, District of Columbia, Missouri, Wisconsin, Alabama, Massachusetts, Arizona, New Hampshire, New York. In these states it will be more expensive to rent than buy a home. New York state has a low price-to-rent ratio because renters tend to live where rents are high while the home prices will capture suburban and rural areas of New York where home prices are cheaper. So, buying is less expensive than renting in New York, but only if one moves out of New York City. This becomes more feasible because of greater leeway granted by working from home.

Table of lowest price to rent ratio in 2019


[2] Trulia