The Rent versus Buy Decision: Investigating the Needed Property Appreciation Rates to be Indifferent between Renting and Buying Property

Abstract

This paper investigates the needed property appreciation rates (herein also referred to as hurdle rates, indifference rates, and A's) that make individuals indifferent between owning and renting in 28 markets in the United States. This is done to shed further insight into the buy versus rent decisions currently being faced by consumers of housing. Current hurdle rates are estimated for 23 of the largest metropolitan areas, four directional regions, and the country as a whole. A trend analysis of these hurdle rates is also performed. The findings strongly suggest that with few exceptions U.S. markets are trending towards favoring buying over renting. Said another way, current hurdle rates are below typical property appreciation rates in the markets examined and appear to be trending lower through time.