Many Americans are content to rent after witnessing the crumbling housing market in recent years. But with rents on the rise and home prices continuing to fall, a reversal is in sight.

It wasn't hard for many homeowners to bid adieu to 2010. It was the year where, in many metropolitan areas across the country, rents surged as home prices fell, leading a growing chorus of skeptics to question the so-called .

Perhaps not surprisingly, it makes more financial sense to rent than buy today in many U.S. cities, according to the latest data from Moody's Analytics. After declining during the depths of the latest recession, prices for rentals nationwide increased modestly by about 3% in 2010, partly driven by a record number of homeowners looking for new digs after foreclosing on their homes. In Moody's latest list of rent ratios (which is the price of a typical home divided by the annual cost of renting that home) for 54 U.S. metropolitan areas, 39 fell into the 'better to rent' category -- roughly the same level it's been for the past year.

But that may finally be about to change. Moody's chief economist Mark Zandi expects the trend to reverse this year in many major cities. This would be a positive development, as a healthy housing market typically puts renting and owning at more equal footing.

"By mid 2011 and certainly by end of 2011, buying will be superior to renting in most parts of the country," Zandi says.

A few factors will be at play. For one, home prices are expected to fall further, with some economists expecting a 15% to 30% drop this year. This might be bad news for household finances and current homeowners fearing that their most prized asset stands to lose more in value. On the flip side, this makes homes more affordable and might finally spur more home sales, especially at a time when the rate of home construction has been the lowest since before the Second World War.

Just last week, the reported a 0.8% fall in prices from October 2009 – the biggest year-over-year drop since December 2009. Eighteen of 20 cities showed a drop in prices in October. This was led by a 2.1% decrease in Atlanta, followed by a 1.8% drop in Chicago and Minneapolis. What's more, six markets, including Atlanta, Miami, Tampa and Portland, Ore., reached their lowest levels in October since prices started to retreat.

Indeed, the housing market continues to suffer from too much supply. Though rent prices are generally expected to continue rising modestly this year, the overhang will probably help keep prices from rising too much. "Expect more declines in home prices and more rent stability," Zandi says.

Still, the comparative costs between renting and buying will largely depend on individual market conditions. For instance, cities in Florida and Arizona, which continue to experience high foreclosure rates, falling home prices and widespread unemployment, will be areas where homeownership will likely be more affordable than renting, says Daisy Kong at Trulia, a San Francisco-based real estate data provider. Meanwhile, renting will probably continue to make more financial sense in national and regional job centers such as New York, Omaha and Seattle, she says.

And while it could become more attractive to buy than rent this year, it's anyone's guess how long it could take before a flurry of home sales transpires. Household finances have improved only modestly and are still quite a mess. Also, lending standards for new mortgages have tightened considerably and many economists have said a housing rebound will likely fall mercy to the unemployment rate, which is expected to improve some but still hover over 9%.

Will the American Dream return to your town?

Location	Price-Rent Ratio
Atlanta, GA	12.82
Austin, TX	21.08
Boston, MA	17.71
Baltimore, MD	17.42
Charlotte, NC	25.98
Chicago, IL	15.09
Cincinatti, OH	13.74
Cleveland, OH	11.43
Columbus, OH	15.61
Dallas - Fort Worth, TX	16.98
Denver, CO	22.08
Detroit, MI	12.32
East Bay, CA	35.06
Fort Lauderdale, FL	15.19
Hartford, CT	18.52
Honolulu, HI	34.72
Houston, TX	16.01
Indianapolis, IN	14.68
Inland Empire, CA	14.75
Jacksonville, CA	15.12
Kansas City, KS	14.4
Las Vegas, NV	13.89
Long Island, NY	21.09
Los Angeles, CA	14.99
Memphis, TN	17.92
Miami, FL	14.57
Milwaukee, WI	22.36
Minneapolis, MN	14.04
Nashville, TN	23.88
New Orleans, LA	15.66
New York, NY	15.43
Norfolk, VA	19.88
North - Central New Jersey	24.69
Oklahoma City, OK	16.11
Orange County, CA	27.14
Orlando, FL	13.1
Palm Beach County, FL	16.64
Philadelphia, PA	15.94
Phoenix, AZ	12.35
Pittsburg, PA	11.71
Portland, OR	25.74
Raleigh, NC	24.39
Richmond, VA	22.18
Sacramento, CA	15.85
Salt Lake City, UT	18.05
San Antonio, TX	17.77
San Diego, CA	21.75
San Francisco, CA	27.17
San Jose, CA	32.27
Seattle, WA	26.96
Bridgeport, CT	18.49
St. Louis, MO	14.04
Tampa, FL	13.08
Washington - Northern Virginia - Maryland	18.48
Manhattan, NY	28.34
Metropolitan Area Average	14.85
U.S.	10.42

Source: Moody's Analytics, price-rent ratio for third quarter of 2010. As a general rule of thumb, you should often buy when the ratio is below 15 and rent when it's above 20. If it's between 15 and 20, lean toward renting.

Also on Fortune.com:

Home sales are a reflection of the unemployment rate. The reason there are so many homes on the market isn't from the housing bubble, it is because people can't get approved to buy them right now. Houses are so cheap, if people had the income and credit to get them, they would be scooped up at a rapid pace. Mark my word, as more jobs are created, and the economy stabilizes, these houses will be scooped up.

Posted By J.R. Texas: January 14, 2011 11:28 am

We rented in San Francisco for 28 years, where we could never afford to buy. After 14 years in "our" last home, the landlord gave us 60 days' notice to vacate so his kids could live there. We moved 1,000 miles to where we could afford to buy, and we wish we had done it sooner. There is nothing like having your own place. Yes, you pay for upkeep, but at least you're not at the mercy of an owner who won't keep the place up but keeps raising the rent.

Posted By Kristi, Anacortes WA: January 11, 2011 7:49 pm

There sure are a lot of nay sayers out their against housing. You all sound so smart when looking in hindsight. The market is local, if you work with qualified professionals and follow good advice you can absolutley turn your home into an investment. I recently purchased a dupled for $125,000. The mortgage is $953, a renter covers their utlities and pays me a rent of $700 a month. I inturn get to depriciate the property and deduct any improvements. I basicly live there for free after taxes. Nay sayers speak on, but some of the wealthiest people I know built there wealth through calculated risks in real estate.

Posted By Andy St. Paul, MN: January 11, 2011 5:16 pm

Where is he getting his numbers? In Houston, it seems he is comparing the price of a four berdroom home to the rent of a 2 bedroom apartment. For the record, the median home sells for $150,000 and rents for at least $15,000 per year. In general, our price to rent ratio is under 10, not 16 as reported.

Posted By Ken Smith Houston Texas: January 7, 2011 1:41 pm

It is in these people's best interests to keep people buying homes. It may not be in your best interests. Two people to never listen to when going to buy a home.

#1. A real estate agent, who makes money on transactions of homes.

#2. A real estate analyst, who is paid to sell his/her information. No one like to buy bad news.

Posted By Marketcapitalistpig; Worcester MA: January 7, 2011 7:50 am

I have been a real estate in Columbus OH for +15 years. I agree, Real Estate is local. My advice has always been to pay attention to what is happening in the market in which one lives; the national data doesn't apply locally.

In response to the investment homeowners make in their home over the years (maintenance, lawn and landscaping care, general updating, etc.) vs. investing the dollars in the stock market, remember homeowners have received a great amount of value from living in their home. Some of the value is intangible but nonetheless is tremendous.
The Columbus OH market did not experience dbl. digit appreciation. Average appreciation has been 3-6%/yr.

There are tremendous values in housing currently; one just needs to buy and sell smart. Do not buy on emotion; make a decision with the help of a reputable, knowledgeable agent and data from a solid market analysis.

Posted By Jeanne Cousino; Columbus, OH: January 6, 2011 2:25 pm

Sorry to seem negative....it's just that the author is really missing the big picture, or incredibly naive...or just delusional. The housing market is no longer a commodity and should not even be called a "market".

Homeowner-occupied "only" is the new game rule. Ask any investor who thinks that buying today's foreclosures/short-sales/distressed is still a good deal. Ha!....Elvis has left the building (long ago), so please stop asking for an encore. It just ain't gonna happen.

Posted By Frank Francin, Jacksonville,NC: January 6, 2011 2:17 pm

This seems somewhat like the "fundamentals" approach of stock-picking. Everyone knows that the value of a financial asset is the present value of all future cash flows. And, that's surely simple enough-- except for that part about determining those future cash flows.

And so, too, the rent-vs-buy decision depends on the trend of house prices in your community, the trend of rent prices in your community, and the opportunity cost of tying up cash in housing.

Given the uncertainty in all these things-- plus the fact that housing markets are inherently local-- it's not surprising that most buyers/renters go by their guts, and eschew the heavy-duty analysis.

Posted By Albigensian, Milwaukee, WI: January 5, 2011 10:18 am

According to this article it's time to buy a home in Detroit!?! Come on. Home mortgages are pure usury. You pay 48% total interest over the life of the loan. You also pay for home maintenance even though the lender owns most of the property for the vast majority of the time the mortgage is in existence. You get to insure "your home" against fire so the bank won't lose its investment. Everybody is a damn fool for signing these mortgage papers. I said this when I was 18 years of age (now 65). First 15 years of home mortgages are largely interest payments, and since most people move within 7 years, bank is perpetually earning interest.

Posted By Bill Sardi, San Dimas, California: January 5, 2011 9:18 am

Agreed with early initial comments, especially the one regarding hidden costs. Why folks can't do simple math is beyond me. Add up all the costs (taxes, maint, insurance, interest on mortgage, lost interest on principal sunk in the place (I have CD rates at 2.5% currently, and this could go higher), and offsetting the surprise uptick in appreciation (the bubble is over, articles like these are simpleton reports that say the word housing and raise emotions of hope...) would be the capital improvements needed to remain competitive if indeed wanting to sell) and compare this number to Rent.

Furthermore, in doing so, out over time (pick a simple reasonable period, like ten years), I personally find housing needs to correct another 30-50% to even begin to make sense in buying v renting. And that's pretty much to break even because do NOT forget to put in to your model that taxes, etc WILL go up. At least rent you can negotiate and, if need be, walk and rent another place. And that brings up the flexibility option value with renting.

Housing was and is still in bubble mode.
Move on.

Posted By Tom, Boston MA: January 5, 2011 7:27 am

I bought a house in 1989 and sold it in 2003 for double what I paid for it. I thought I made a fortune until I added up all my costs during that 14 year period - taxes, interest, insurance, new driveway, new roof, new furnace, lawn mowing, flowers and other plants, snow shovels and other gardening tools, tree spaying, sewer backup, painting (inside and out,) new fence, tree removal, plumbing repairs, electrician repairs, and more.

In the end, I should have invested my original mortgage in the stock market, made a lot more money, and would have had a lot more time to play and less stress.

Buying a house is a life style choice. It is not an investment, nor will it save you money vs. renting.

Posted By R.Mc, Sacramento, CA: January 4, 2011 5:42 pm

If you invest in rental properties then now is actually a very good time to buy additional units. With so many people that lost homes, they are predicting a shortage of availability in rental units.  I have seen many multi unit bank owned properties at great rates. You can investigate the Boise Idaho area and search the

Posted By idahorealtor: January 4, 2011 2:42 pm

Here's one American city where a house can be purchased for less than the price of a modest used car:

Just don't count on getting employment!

Posted By Steve Thompson, Searsport, ME: January 4, 2011 2:34 pm

"By mid 2011 and certainly by end of 2011, buying will be superior to renting in most parts of the country," Zandi says."

He was wrong with everything he said and did throughout the inflating of the real estate bubble.

Buying a house is about as good as buying a bridge and will be for at least another decade.

Posted By JJ, NY: January 4, 2011 2:25 pm « »CNNMoney.com Comment Policy: CNNMoney.com encourages you to add a comment to this discussion. You may not post any unlawful, threatening, libelous, defamatory, obscene, pornographic or other material that would violate the law. Please note that CNNMoney.com may edit comments for clarity or to keep out questionable or off-topic material. All comments should be relevant to the post and remain respectful of other authors and commenters. By submitting your comment, you hereby give CNNMoney.com the right, but not the obligation, to post, air, edit, exhibit, telecast, cablecast, webcast, re-use, publish, reproduce, use, license, print, distribute or otherwise use your comment(s) and accompanying personal identifying information via all forms of media now known or hereafter devised, worldwide, in perpetuity. .

Nin-Hai Tseng covers economics and finance for Fortune.com. Tseng was previously a reporter at The Orlando Sentinel, covering development and land-use policy, and a public affairs associate at GE. She has a graduate degree in international economic policy from Columbia University. She lives in New York City.

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