Renting A Home A Better Deal Than Buying In Much Of U.S.

Those glamorous people you see in the upscale boutiques of Beverly Hills and Santa Monica may have a secret beyond their romantic lives and surgical histories.

Many of these fashionable glitterati — squeezed out of palatial homes they'd bought on debt — may have just put their rent checks in the mail.

Renting now makes sense in many markets — even for the very prosperous.

Kami Merabi, president of L.A.- based realtor Merabi & Sons, says he personally has 160 to 165 clients who've moved out of pricey homes to rent apartments. "They have $3 million in debt and the house is worth $2 million. They walk away from the mortgage," said Merabi. Actors, actresses, music producers and business owners star in that cast of 160 walk-aways.

It's not just in upscale enclaves like Beverly Hills that renting has become an attractive option. The Washington-based Center for Economic and Policy Research periodically computes the ratio of home prices to annual rental costs. A typical historical ratio is 13 to 14, notes Dean Baker, co-director of CEPR. But in 13 areas of the U.S., home prices are 18 times or more rental costs. These are still "bubble markets."

Among the markets where rentals appear to be a bargain: San Jose; the Bridgeport-Stamford-Norwalk, Conn., area; San Francisco-Oakland; Seattle; and the New York metro area. Using a different ownership-to-rental methodology, Moody's Economy.com cites Oakland, Miami, Boston and Orlando as markets where housing remains overvalued.

Of course, the choice to buy or rent is often dictated by personal factors beyond cost. And every market has unique features that can tilt the equation. In Los Angeles, for example, the costs of property upkeep alone must be weighed, says Merabi. On a high-end property, gardening costs can run to $100 a week. Pool upkeep and maintenance can add another $100 to $125 a week, he says. That's nearly $1,000 a month beyond mortgage and property taxes.

Ownership Has Benefits

Home ownership does offer two major financial benefits: mortgage payments are tax-deductible and homeowners build up equity over time. And, temporarily, the home-buyer tax credit provides a big upfront inducement to buy a home.

But if prices drop after a home is purchased, it will take longer for owners to build equity. Current buyers in 21 markets — including San Jose, L.A., San Francisco and New York — cannot expect to have any positive equity by 2013, according to CEPR.