I am curious about the accuracy of these calculations that use asking price as either numerator or denominator instead of actual carry costs?

If one home buyer puts the absolute minimum down and purchases a house in Baltimore City, with its massive tax burden, and another buyer pays all cash in the County for the same priced house, annual carry costs will be massively different for the two. It seems that an "out of pocket" calculation would be more accurate, although almost impossible to aggregate for locality differences.

Well the calculation you use is wrong because home owners have property taxes to pay. They have home maintenance to deal with and many other cost that need to be included in "The Price" before you can make the claim that buying is cheaper than renting.

After receiving a notice from my Columbia apartment complex in early June that our rent would be increasing an above average amount I started to crunch the numbers on buying a home in the area. We found a great home in the Catonsville area for @ 200k and got an FHA mortgage. The advantages to us were: our monthly mortgage payment (including tax/hoa/mi) will be over $150 less than our rent, tax benefits, asset ownership, better living conditions. If you have good credit and a few thousand in the bank, which is tough nowadays, buying is the way to go

TGC3RD, remember, these aren't ~my~ calculations or claims -- I'm reporting on Trulia's calculations and claims, and noting that their calculation isn't the only one out there in the buy vs. rent debate.

The idea of both Trulia's and Killelea's calculations is to roughly take into account that owning brings costs beyond the mortgage payment. Whether they accurately do that, I just don't know -- I ran one test and it looked all right, but I'd want to try a variety of rent vs. buy comparisons.

I've been looking at buying IN Baltimore City, and I have to quibble with Trulia's numbers. For example, an upgraded Federal Hill rowhome with 2-3 bedrooms can't be expected to rent for more than about $2000 (parking, roof deck, etc., may push it to $2400 or so). However, the same house sells for around $310K-$360K (depending on neighborhood etc.) or so and, even with interest rates as low as 4.25%, mortgage principal + interest, taxes, and insurance comes to about $2300-$2700 per month. And this is before you allot money for maintenance (another $1-200 per month on average is not unreasonable). Bottom line, don't expect to come out ahead if you have to move out within the next 3-5 years.

jjryan, that's a great specific example. I've yet to see really good typical/average rent data for each neighborhood, but if it's out there, that would be an interesting calculation -- rent vs. buy by neighborhood, rather than for the city as a whole. The problem with typical or average prices and rents for a big area like the city is that your mileage can really vary from one address to the next.

For Baltimore City, Trulia takes into account the average home price in Baltimore City which they have at around 150k. Certainly Fed Hill is definitely not close to average. So if you're buying at the average home price (with 10-20% down which is possible with all of the programs out there) and are coming from the average apartment price of $1350, things are well in line for buying to be cheaper the way interest rates are today.

Since neighborhoods like Canton, Patterson Park, Fed Hill and Fell's did not interest me for various reasons, I was able to buy a home for less than the rent I was paying in an apartment.

I agree with this, I just bought a 2 bedroom with a deck and parking in Fed Hill and have a mortgage of $1,660, and my neighbor rents his smilar house for $1,800 (parking, but no deck). Mine was a short sale and I don't pay PMI since I got a VA loan, but even without these advantages mortgage and rent would have been close. The rent to mortgage comparison was the main reason I finally bought.

I've seen Trulia's calculation before, but I've heard of it being called a P/R (price/rent) ratio, which to me is resi real estate's answer to a P/E ratio for an equity.

As is stated here, this doesn't take into account (I don't think) ANY expenses associated with a house, merely the gross POTENTIAL income. Forget about potential vacancy, major capital expenditures, etc. being factored in as risks.

Bottom line to me, its not as simple as "if the potential rent you can get is less than the mortgage, you're good." Plus, lets keep in mind, as soon as you stop declaring the property as your primary residence, the city jacks you yet again.

I was thinking about this earlier to distinguish between different submarkets: my taxes comprise 30% of my monthly mortgage payment. Where is the critical point of when tenants' desire for living amenities (bars, nightlife, stadiums, proximity to downtown) exceed this preposterous burden put on residents by this city's inept, entitled, (for lack of a better term) FAT government?

New take-out places and boutiques are still opening in Federal Hill, so hopefully they are a beacon in the dismal times for most homeowners.

Good point about property taxes, frankiesez -- landlords don't qualify for the Homestead tax credit, so any full number-crunching of the possibilities would need to take that into account. And, as you say, potential rental income and actual rental income are not necessarily equal.

The relative ranking of the cities is probably accurate, but as an absolute indication of whether renting or buying is better, the analysis is flawed. Rent values on Trulia probably skew towards higher rents than house price values (the rent price of a $50-100k house is not going to be listed on Trulia, as it is probably not a legally rentable property, but a similar property would still be listed for sale).

I do agree though, that buying (barely) is better than renting in Baltimore if you assume you can re-sell at the price you bought at least few years down the line.

From my calculations, the costs of owning (monthly property taxes+insurance+maintenance+mortagage interest) is approximately equal to what you could rent a place for, in areas like Federal Hill, Fells Point and Hampden. (jiryan - buying vs renting should include building equity on the house. A conservative estimate would be 0% house value growth, which is essentially the same as taking the monthly principle out of the equation).

The nytimes.com Rent vs Buy Calculator is well worth a look.

As a final note, I think house price data is pretty sketchy right now. The market is illiquid, the # of transactions is low, and a large proportion of transactions are of as-is distressed property, where the price reflects neither the actual amount of money spent on a house or the house's value in any relevant medium or long-term time frame.

This matters in the rent vs. buy decision because both the amount you will actually spend on the house and the amount the house is worth in the medium to long term is critical to the calculation.

Bottom line is, if you're confident you'll be living in Baltimore for the next 4-5 years, you should definitely consider buying. If you suddenly have to sell a year from now, you could be looking at a hefty loss. That risk is hard to figure into a calculator.

Don't forget if we get a mayor that will reduce property taxes you can expect your home value to jump.