One overlooked metric is measuring whether a real estate market is over or under priced is the “Rent vs. Buy” Index. This index compares the average rent in a particular locale with the selling price of a similar property. For example, if an apartment rents for $12,000 a year ($1,000 a month) and a similar condo sells for $180,000 then the rent/buy ratio is 15 ($180, 000/$24,000 = 15).
In a given market, if the ration is 15 or less, the “for-sale” market is under-priced as compared with rentals. If it is over 20, renting is less expensive. Ratios between 16 and 19 may fall either way depending on locational and amenity factors.
Cities in the United States where renting is much cheaper includes the nations most populous and include New York, Boston, San Francisco and Seattle. The good news is that Baltimore is clearly in the “Buy” category with a ratio of 12, as reported by Trulia.Com, the real estate analytics site.