If you live in San Jose, Calif., you're much better off renting.  (© Jamie Kripke/Corbis)

If you live in San Jose, Calif., you're much better off renting.

A few years back, buying a home was sold as a no-lose proposition. But the housing bust has demonstrated that renting is often the more financially prudent decision, a new study finds.

Danilo Pelletiere, research director for the National Low Income Housing Coalition and co-author of the study, is on a mission to undo the notion that homebuying is for everybody, everywhere. He wants families to stop stretching themselves to the max, spending the grocery money to try to stay in homes they can't afford whose value is dropping by the minute.

Using a rule of thumb that truly affordable homes cost no more than 15 times their annual market rent, the study found that prices in 34 of the largest 100 metro areas still have a lot of room to fall and would leave their owners with negative equity were they to sell in four years. Read 

Hit worst would be home buyers in San Jose, Calif., the nation's priciest market. By the study's calculations, anyone who bought a low-priced home there with a 6% loan could be $355,000 in the hole in 2012. (A low-priced home was defined as 75% of the area's current median price.)

In San Francisco, you stand to lose around $254,000 in the next four years, according to the study; in Honolulu, $115,000; in Seattle, $108,000; in Washington, D.C., $81,000; and Boston, $28,000.

That's not to say prices won't eventually recover. But you could be courting disaster if you need to sell before they do recover. "In these places, if you buy in now you've got to do so with your eyes wide open," warns Pelletiere. "Now is the time for extreme caution."

Table: 34 places where it's better to rent

Projected equity in 2012 …

Metro area

6% loan

7% loan

8% loan

San Jose-Sunnyvale-Santa Clara, Calif. 

-355,346

-361,381

-366,603

San Francisco-Oakland-Fremont, Calif.

-253,875

-259,684

-264,711

Los Angeles-Long Beach-Santa Ana, Calif.

-222,719

-227,598

-231,820

Oxnard-Thousand Oaks-Ventura, Calif.

-203,481

-208,464

-212,776

Bridgeport-Stamford-Norwalk, Conn. 

-183,685

-187,931

-191,605

San Diego-Carlsbad-San Marcos, Calif.

-157,371

-161,798

-165,629

Honolulu

-114,657

-119,323

-123,360

Stockton, Calif.

-109,757

-112,775

-115,386

Seattle-Tacoma-Bellevue, Wash. 

-108,427

-111,496

-114,151

Sacramento-Arden-Arcade-Roseville, Calif.

-107,621

-110,772

-113,499

New York-North New Jersey-Long Island, N.Y.-Pennsylvania*

-102,428

-106,287

-109,625

Washington, D.C.-Arlington-Alexandria, Va.- Maryland-West Virginia*

-80,522

-84,201

-87,384

Modesto, Calif.

-77,449

-80,070

-82,337

Portland, Ore.-Vancouver, Wash.-Beaverton, Ore. 

-72,330

-74,665

-76,686

Riverside-San Bernardino-Ontario, Calif.

-56,953

-60,016

-62,665

Fresno, Calif.

-55,743

-58,040

-60,027

Bakersfield, Calif.

-49,364

-51,322

-53,016

Miami-Fort Lauderdale-Pompano Beach, Fla. 

-33,172

-35,786

-38,047

Baltimore-Towson, Md. 

-32,409

-34,966

-37,178

Las Vegas-Paradise, Nev. 

-32,060

-34,576

-36,752

Worcester, Mass. 

-29,098

-31,518

-33,612

Boston-Cambridge, Mass.-Quincy, N.H. 

-27,540

-30,816

-33,650

Providence, R.I.-New Bedford-Fall River, Mass. 

-25,748

-28,261

-30,436

Phoenix-Mesa-Scottsdale, Ariz. 

-24,072

-26,217

-28,073

Poughkeepsie-Newburgh-Middletown, N.Y. 

-22,728

-25,401

-27,714

Salt Lake City

-19,237

-21,097

-22,706

Boise City-Nampa, Idaho 

-12,665

-14,256

-15,633

Minneapolis-St. Paul, Minn.-Bloomington, Wis. 

-8,429

-10,404

-12,113

Denver-Aurora, Colo. 

-8,072

-10,107

-11,868

Ogden-Clearfield, Utah 

-5,621

-7,222

-8,607

Madison, Wis. 

-5,217

-7,072

-8,677

Chicago-Naperville-Joliet, Ill.-Indiana-Wisconsin*

-2,098

-4,231

-6,077

Cape Coral-Fort Myers, Fla. 

1,321

-653

-2,362

Tucson, Ariz. 

1,764

56

-1,422

Source: Center for Economic and Policy Research and the National Low Income Housing Coalition
*Metropolitan area extends across state borders

How to test for affordability
How can you tell if buying is a good idea or a bad one? Pelletiere invokes a rule of thumb: If your house costs more than 15 times the annual average rent for a similar place in your area, there's an excellent chance that your home is overpriced.

Here's an example to see how to figure out if your city flunks the affordability test:

In San Jose, the average cost of renting a two-bedroom house or apartment is around $1,300 a month. That's $15,600 a year you'll be spending on rent.

Buying a similar place will cost you easily $500,000 -- 32 times what you're likely to spend on rent a year. "That's an indication that the community has been subject to the speculative price bubble," says Pelletiere. Using the affordability rule, that half-million-dollar San Jose condo is really worth more like $234,000 ($15,600 x 15).

You can use the rule of thumb to analyze each neighborhood, which is really a small real-estate market within the larger metro market. To test a neighborhood, check rental ads to find roughly what you'd pay in rent for a home comparable to one you want to buy, then run the calculations to find out if you'll be paying more than 15 times the annual rent to purchase.

Remember, even within a city, affordability will vary by neighborhood. Prices for rents and purchases in the chart below are averages, including some high-priced neighborhoods and others where values may be depressed because, for instance, they're far out in the suburbs with an expensive commute and an oversupply of new construction.

Table: Buying vs. renting in 100 largest metros (sorted from high to low, where the monthly cost to rent a two-bedroom unit makes the most sense compared to the costs of a 6% loan on a low-cost home)

Metro area

Low-priced home, 6% loan

7% loan

2-BR rental

3-BR rental

Cost diff. between 6% loan and 2 BR rental

San Jose-Sunnyvale-Santa Clara, Calif.

$3,778

$4,311

$1,293

$1,859

($2,485)

San Francisco-Oakland-Fremont, Calif.

$3,637

$4,149

$1,592

$2,125

($2,045)

Los Angeles-Long Beach-Santa Ana, Calif.

$3,054

$3,485

$1,300

$1,746

($1,754)

Oxnard-Thousand Oaks-Ventura, Calif.

$3,120

$3,560

$1,422

$2,038

($1,698)

Bridgeport-Stamford-Norwalk, Conn. 

$2,658

$3,033

$1,171

$1,399

($1,487)

San Diego-Carlsbad-San Marcos, Calif.

$2,771

$3,162

$1,355

$1,976

($1,416)

Honolulu

$2,921

$3,332

$1,630

$2,377

($1,291)

New York-North New Jersey-Long Island, N.Y.-Pa.*

$2,415

$2,756

$1,318

$1,621

($1,097)

Sacramento-Arden-Arcade-Roseville, Calif.

$1,973

$2,251

$982

$1,417

($991)

Washington, D.C.-Arlington-Alexandria, Va.-Maryland-West Virginia  *

$2,303

$2,627

$1,324

$1,708

($979)

Seattle-Tacoma-Bellevue, Wash.

$1,921

$2,192

$942

$1,331

($979)

Stockton, Calif.

$1,889

$2,155

$914

$1,255

($975)

Modesto, Calif.

$1,640

$1,871

$864

$1,239

($776)

Riverside-San Bernardino-Ontario, Calif.

$1,917

$2,187

$1,142

$1,622

($775)

Portland, Ore.-Vancouver, Wash.-Beaverton, Ore. 

$1,462

$1,668

$757

$1,102

($705)

Boston-Cambridge, Mass.-Quincy, N.H. 

$2,051

$2,340

$1,353

$1,618

($698)

Fresno, Calif.

$1,438

$1,640

$805

$1,171

($633)

Miami-Fort Lauderdale-Pompano Beach, Fla. 

$1,636

$1,867

$1,035

$1,324

($601)

Baltimore-Towson, Md. 

$1,600

$1,826

$1,013

$1,301

($587)

Las Vegas-Paradise, Nev. 

$1,575

$1,797

$996

$1,382

($579)

Poughkeepsie-Newburgh-Middletown, N.Y. 

$1,673

$1,909

$1,103

$1,352

($570)

Providence, R.I.-New Bedford-Fall River, Mass. 

$1,573

$1,795

$1,020

$1,221

($553)

Worcester, Mass. 

$1,515

$1,728

$965

$1,154

($550)

Bakersfield, Calif.

$1,225

$1,398

$679

$981

($546)

Phoenix-Mesa-Scottsdale, Ariz. 

$1,343

$1,532

$862

$1,256

($481)

Salt Lake City

$1,164

$1,328

$754

$1,061

($410)

Denver-Aurora, Colo. 

$1,274

$1,454

$876

$1,244

($398)

Chicago-Naperville-Joliet, Ill.-Indiana-Wisconsin*

$1,335

$1,524

$944

$1,154

($391)

Minneapolis-St. Paul, Minn.-Bloomington, Wis. 

$1,236

$1,411

$848

$1,110

($388)

Madison, Wis.

$1,161

$1,325

$807

$1,083

($354)

Cape Coral-Fort Myers, Fla. 

$1,236

$1,410

$886

$1,204

($350)

Boise City-Nampa, Idaho 

$996

$1,136

$660

$960

($336)

Hartford-West Hartford-East Hartford, Conn. 

$1,307

$1,492

$985

$1,183

($322)

Orlando-Kissimmee, Fla. 

$1,232

$1,405

$915

$1,146

($317)

Ogden-Clearfield, Utah 

$1,002

$1,143

$692

$952

($310)

Virginia Beach-Norfolk-Newport News, Va.-North Carolina *

$1,211

$1,381

$904

$1,247

($307)

Tucson, Ariz. 

$1,069

$1,220

$769

$1,110

($300)

Colorado Springs, Colo. 

$1,093

$1,248

$797

$1,137

($296)

Philadelphia-Camden, N.J.-Wilmington, Del. -Maryland*

$1,227

$1,400

$932

$1,116

($295)

New Haven-Milford, Conn. 

$1,400

$1,598

$1,142

$1,367

($258)

Allentown-Bethlehem, Pa.-Easton, N.J. 

$1,074

$1,226

$816

$1,056

($258)

Milwaukee-Waukesha-West Allis, Wis. 

$1,045

$1,192

$795

$1,002

($250)

Springfield, Mass. 

$1,094

$1,248

$844

$1,010

($250)

Richmond, Va. 

$1,102

$1,257

$870

$1,161

($232)

Sarasota-Bradenton-Venice, Fla. 

$1,231

$1,405

$1,002

$1,280

($229)

Raleigh-Cary, N.C. 

$1,013

$1,156

$797

$1,002

($216)

Portland-South Portland-Biddeford, Maine 

$1,248

$1,424

$1,036

$1,305

($212)

Palm Bay-Melbourne-Titusville, Fla. 

$1,016

$1,159

$815

$1,098

($201)

Jacksonville, Fla. 

$997

$1,137

$816

$1,024

($181)

Atlanta-Sandy Springs-Marietta, Ga. 

$991

$1,131

$824

$1,003

($167)

Albuquerque, N.M. 

$907

$1,035

$760

$1,107

($147)

Nashville-Davidson-Murfreesboro-Franklin, Tenn. 

$868

$990

$723

$938

($145)

Deltona-Daytona Beach-Ormond Beach, Fla. 

$985

$1,124

$845

$1,093

($140)

Charleston-North Charleston, S.C. 

$958

$1,093

$823

$1,072

($135)

Charlotte-Gastonia, N.C.-Concord, S.C. 

$873

$996

$740

$932

($133)

Columbus, Ohio 

$847

$967

$718

$903

($129)

Tampa-St. Petersburg-Clearwater, Fla. 

$1,008

$1,150

$883

$1,119

($125)

Knoxville, Tenn. 

$751

$857

$633

$848

($118)

St. Louis -Illinois*

$816

$930

$711

$916

($105)

Louisville-Jefferson County, Ky.-Indiana *

$748

$853

$663

$926

($85)

Harrisburg-Carlisle, Pa. 

$806

$920

$722

$911

($84)

Albany-Schenectady-Troy, N.Y. 

$923

$1,053

$851

$817

($72)

Cincinnati-Middletown, Ind. 

$795

$907

$726

$972

($69)

Kansas City, Mo.-Kansas City, Kan. 

$805

$919

$754

$1,020

($51)

Detroit-Warren-Livonia, Mich. 

$850

$970

$805

$963

($45)

Cleveland-Elyria-Mentor, Ohio 

$767

$876

$725

$929

($42)

Des Moines-West Des Moines, Iowa 

$772

$881

$732

$938

($40)

Greenville-Mauldin-Easley, S.C. 

$688

$785

$649

$857

($39)

Grand Rapids-Wyoming, Mich. 

$739

$843

$702

$896

($37)

Chattanooga, Tenn.-Georgia* 

$670

$764

$639

$787

($31)

Omaha, Neb.-Council Bluffs, Iowa *

$732

$835

$710

$948

($22)

Toledo, Ohio 

$677

$773

$656

$846

($21)

Indianapolis-Carmel, Ind. 

$745

$850

$726

$939

($19)

Birmingham-Hoover, Ala. 

$706

$806

$690

$876

($16)

Akron, Ohio 

$741

$845

$743

$945

$2

Scranton-Wilkes-Barre, Pa. 

$624

$712

$627

$795

$3

Austin-Round Rock, Texas 

$925

$1,055

$935

$878

$10

Dayton, Ohio 

$667

$761

$678

$913

$11

Greensboro-High Point, N.C. 

$707

$807

$719

$911

$12

Lakeland, Fla. 

$730

$833

$745

$945

$15

Columbia, S.C. 

$661

$755

$692

$855

$31

Baton Rouge, La. 

$722

$824

$758

$966

$36

Oklahoma City 

$598

$683

$641

$865

$43

Wichita, Kan. 

$576

$657

$622

$796

$46

Little Rock-North Little Rock-Conway, Ark. 

$628

$717

$678

$908

$50

Augusta, Ga.-Richmond County, S.C. 

$600

$685

$654

$876

$54

Tulsa, Okla. 

$611

$697

$666

$880

$55

Youngstown-Warren, Ohio-Boardman, Pa. 

$525

$599

$587

$739

$62

Pittsburgh

$596

$680

$666

$828

$70

El Paso, Texas 

$491

$560

$567

$813

$76

Memphis, Tenn.-Mississippi-Arkansas *

$665

$758

$743

$990

$78

New Orleans-Metairie-Kenner, La. 

$898

$1,024

$990

$1,271

$92

Dallas-Fort Worth-Arlington, Texas 

$758

$865

$871

$1,156

$113

Jackson, Miss. 

$619

$706

$747

$899

$128

Houston-Sugar Land-Baytown, Texas 

$710

$810

$852

$1,136

$142

Rochester, N.Y. 

$626

$715

$773

$928

$147

Buffalo-Niagara Falls, N.Y. 

$557

$636

$704

$871

$147

Syracuse, N.Y. 

$557

$635

$713

$913

$156

San Antonio

$597

$681

$780

$1,006

$183

McAllen-Edinburg-Mission, Texas 

$355

$405

$609

$730

$254

Source: Center for Economic and Policy Research and the National Low Income Housing Coalition
*Metropolitan area extends across state borders

By Marilyn Lewis, MSN Real Estate