How real estate prices in the Bay Area compare to rental costs

The Bay Area is one of the most expensive regions in the U.S. when it comes to renting, but buying a home is even more expensive in the long run.

That's not the case everywhere. In the United States, the median home price in June is roughly equal to the median price for a 20-year rental, about $352,000 versus $338,000, according to June 2024 data from real estate companies Zillow and Apartment List.

Yet in the San Francisco metropolitan area, the median home price was nearly twice as much as a 20-year rental — $1.2 million versus $609,000, a ratio of about 1.9. That was the second-highest price-to-rent ratio among the 100 most populous U.S. metropolitan areas for which Zillow and Apartment List have data. In June 2019, the ratio was just 1.3.

The San Jose metropolitan area had the highest ratio in the country at 2.2, with a median home sale price of $1.5 million and a 20-year rent of $715,000. That ratio is up from 1.6 in June 2019.

Other California metropolitan areas — particularly the Los Angeles and San Diego areas — also had some of the highest price-to-rent ratios in the country. California's exorbitant housing prices, which hit record highs this year, have outpaced price growth in other parts of the country for decades. And the ratio of housing prices to rental costs skyrocketed during the pandemic, as California's housing prices hit record highs.

Renters were also much more likely to leave the Bay Area during the pandemic as remote work became popular, said Patrick Carlisle, chief market analyst for the Bay Area market for real estate brokerage Compass. But homeowners tended to stay, and those who moved were usually able to find someone to buy their property. That, combined with low interest rates that sparked bidding wars among homebuyers, drove up home prices while rents fell — “which threw the home price-to-rent ratio out of whack,” Carlisle explained.

In many metropolitan areas in the Midwest and South, it is actually as expensive or cheaper to buy a home than to rent it for 20 years at June 2024 prices. In the Houston and Orlando metropolitan areas, the cost of buying and renting is about the same, while in the Chicago metropolitan area, the median home price of $311,000 was cheaper than two decades of renting at $391,000.

Of course, a simple comparison of home and rental prices only provides a rough estimate. Rental prices typically increase over time, and home buyers are acquiring an asset that will almost certainly increase in value. Location, space, quality of housing, and the ability to buy a home with cash can also affect financial calculations. And in metropolitan areas, it can be much easier for home buyers to break even in relatively more affordable cities like Oakland than in more expensive cities like San Francisco.

But the stark difference between long-term rents and home prices in the Bay Area underscores why many first-time buyers have had to move to metropolitan areas further inland, such as Fresno and Stockton, where the ratio was just 1.3 in June. In fact, an income of over $140,000 is now required to afford a mortgage on an “affordable” home in California, according to the Legislative Analyst's Office.

Nearly 40 percent of U.S. renters said in a February survey commissioned by real estate brokerage Redfin that they do not believe they will ever be able to own a home. The vast majority of these renters cited financial difficulties as the reason for this.

Reach Christian Leonard: [email protected]