5 Cities Where It Hurts to Rent
BOSTON ( MainStreet) The housing bust has hit consumers, banks and financial markets hard but it's also hurt tenants in cities where homeowners who lost properties to foreclosure moved into apartments, driving up local rents.
"You've had a flight to renting that has definitely supported [higher rental rates]," says economist Svenja Gudell of market tracker Zillow.com, whose Rental Bang for Your Buck study recently named the worst U.S. cities for tenants.
Zillow , which is well known for estimating the current value of virtually every home in America, ranked rental markets in the 100 most-populous U.S. cities based on four criteria:
- Median asking prices per square foot for all rentals advertised on Zillow.com
- Estimated rental value of a typical residence within a given city (including owner-occupied properties not available for rent)
- How much each community's median rental value has increased or decreased over the past 12 months
- Each market's "break-even period," an estimate of how many years of homeownership it takes before buying a place costs less than renting
Gudell says the worst cities for tenants have not just high rents, but rapidly rising ones. They also have relatively low home prices that translate into short break-even periods, meaning many renters do better buying places instead of renting.
But bad cities for renters are often good cities for real-estate investors, Gudell says. After all, rapid increases in rental values point to good tenant demand, while short break-even periods mean investors can expect solid capital gains on their purchases.
"Looking at the bottom of the list is a good jumping-off point for investors," Gudell says, although she adds that Zillow's rankings only project each rental market's future conditions out a year or so.
Look below for a rundown of the five cities at the bottom of the Rental Bang for Your Buck rankings (or click here to check out the communities at the top of the list.)
Zillow ranked cities on a weighted index of zero to 100, with a 100 score equaling first place in all data points measured.
All figures are as of Aug. 31 and refer just to housing within city limits, not to properties in surrounding suburbs. Dollar figures refer to the Zillow Rental Index , an estimate of how much a typical residence (even those not for rent) would fetch on the open market, while annual percentage gains refer to the 12 months ended Aug. 31.
Fifth-worst market for renters: Boston
Bang for Your Buck score: 27.26 (out of a possible 100)
Boston makes Zillow's list despite some of America's highest median home values because renting there is even harder on your wallet than buying a place.