Last year I did a post on how the price-to-rent ratio clearly pointed to buying over renting, with a ratio of 11.36. When a client texted me last week to tune in to an MPR housing discussion including how Minnesota is still the most unaffordable state for renters in the Midwest it got me wondering about this year's ratio.
The price-to-rent ratio is the median cost of a home divided by a year's median rent. I was unable to find the median rent so used averages this year. In February 2013, average apartment rent within 10 miles of Minneapolis was $1,006/month or $12,072 annually. February average home price was $201,415… giving a ratio of 16.684. Median home price was lower, at $160,000… giving a ratio of 13.25.
Rule of thumb is that when the ratio is over 20 you should rent rather than buy and when it is under 15 you should buy rather than rent. It is still tipping towards buying rather than renting but if you are looking for a home in the lowest price ranges, be aware that they are becoming more and more difficult to find in good condition… unfortunately, same problem with rents.
Apartment construction in the Twin Cities is now one of the busiest in the nation… with the highest concentration in Downtown and Uptown Minneapolis. It makes me think of the condo growth explosion before the crash… and makes we wonder how long it will take for the luxury apartment market to be absorbed.
There is a need for more apartments right now, but more affordable apartments have the highest need. According to a recent study, a Twin Cities renter earning an average hourly wage and paying average rent would have to work about 98 hours per week to make it affordable. We have a real mismatch between wages and the cost of housing.
Sharlene Hensrud, RE/MAX Results – Email – Minneapolis – St. Paul Realtor
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