Bay Area worst in nation on home affordability metric

Similar gap between cost of renting versus buying preceded Great Recession

(Illustration by The Real Deal with Getty)
(Illustration by The Real Deal with Getty)

To rent or to buy? The price gap between either choice across the Bay Area is the greatest it’s been in decades, with the chasm in both San Jose and San Francisco now leading the nation.

The difference between the cost of renting and the cost of owning a home in the region is the highest it’s been for at least 20 years, the San Francisco Chronicle reported, citing data from Moody’s Analytics.

The price-to-rent ratio is the median home price for an area divided by the average yearly rent. It’s often used to determine the relative cost of renting versus owning a home.

A lower number means owning is cheaper than renting; a higher number suggests owning costs more than renting. A ratio of 20 or more raises concerns about the relative affordability of owning a home.

In San Jose and San Francisco, price-to rent ratios have far exceeded that number since 2000, according to a Moody’s analysis.

The peak for the San Jose metro area hit 59.8 on May 31. The high for Greater San Francisco hit a record 58.8 on June 21 of last year, surpassing the previous high in the mid-2000s when home prices skyrocketed during the housing bubble that burst in 2007-08.

The U.S. price-to-rent ratio on March 31 was 19.9, at the top end of the home affordability range. It hit a high of 22.1 in 2005, during the national housing bubble, and a low of 14.2 in 2011 following the housing crash.

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Within the past year, renting has become cheaper than owning – with the expense about the same until the market went wild.

The price-to-rent ratio in San Francisco and San Jose “has always been much higher” than in other parts of the country, Cris deRitis, chief deputy economist for Moody’s Analytics, told the newspaper.

The reason, he said, is high demand due to relative scarcity, in part resulting from government regulations and compliance constraints that prevent more building.

Among large metro regions in the U.S., California markets dominate the top 10, with San Jose No. 1 followed by San Francisco, Anaheim and Oakland. Salt Lake City was in fifth place, followed by Denver, San Diego, and Seattle. Oxnard in Ventura County was ninth, and Tacoma, Washington, rounded out the list in 10th place.

The price-to-rent ratios in some of these markets – including Los Angeles and Miami – also grew during the pandemic, and are approaching the levels reached during the housing boom in the mid-2000s.

– Dana Bartholomew

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