Rising rents and falling property values in many major markets are combining the change the rent vs. buy equation for thousands of potential homeowners around the country.  Suddenly homeownership is within reach of buyers who don’t need a tax credit to make the numbers work.

Rents in the third quarter were up 2.6 percent nationally over a year ago, and with occupancy rates climbing sharply, to 93.9 percent.  The outlook is good for further rent hikes in the balance of the year, according to MPF Research.

“While sluggish employment growth has triggered only mild new household formation, apartments are capturing a disproportionately large share of total housing demand,” said Greg Willett, MPF Research’s vice president of research and analysis. “That pattern is likely to be sustained for a while, in part because current mortgage qualifications standards have made it tougher to buy a home. Expansion of the country’s population of young adults, who tend to favor renting over ownership, also is working in the apartment sector’s favor.”

At the same time the median price of an existing home fell 2.1 percent from July to August.  Though prices are still 0.8 percent above last year’s level, most observers expect them to continue to fall as high levels of foreclosures flood many markets and demand slackens.

Prospective buyers in more and more markets are finding that it is actually cheaper to buy than rent.  The Trulia.com web site calculated the comparative costs of owning versus renting in the nation’s top 50 markets and found that in 18 markets it is much less expensive to buy than rent.  Top five markets in which to buy are Arlington, TX, Fresno, CA, Miami, FL, and Mesa and Phoenix, AZ.

“Choosing to buy a home or continue to rent is a highly personal financial and life decision that many people are grappling with right now,” said Pete Flint, CEO and co-founder of Trulia. ”In the wake of the foreclosure crisis and ongoing struggles in the industry, we created the Rent vs. Buy Index to provide a bit more context about current marketplace conditions to help prospective buyers make the right decisions for their own personal situations.”

Trulia calculates the price-to-rent ratio using the average list price compared with the average rent of two-bedroom apartments, condos and townhomes listed on Trulia.com. To create the list, Trulia analyzed the largest 50 U.S. cities by population.

High foreclosure rates, falling home prices and widespread unemployment have led to multiple Florida and Arizona cities reporting homeownership as more affordable than renting; Detroit and Columbus also made the list of Top 10 Cities for homeownership affordability compared with renting for similar reasons.  On the other end of the affordability spectrum, owning is significantly more expensive than renting in national and regional job centers like New York, Omaha and Seattle.

Top 10 Cities to Buy vs. Rent

Trulia calculated the price-to-rent ratio for the 50 largest U.S. cities using the average list price compared with the average rent on two-bedroom apartments, condos, townhomes and co-ops listed on Trulia.com. This Index considers both the total cost of home ownership against the total costs of renting (examples of costs for both home ownership and renting outlined below).

Sample Price-to-Rent Ratio Calculation:

Average List Price: $90,445.60

Average Rent: $936.30

Price-to-rent ratio:    $90,445.60 ÷ ($936.30 x 12) = 8.05

Price-to-Rent Ratio of 1-15: It is much less expensive to own than to rent a home in this city.