The method used is explained in the WSJ story:
Deutsche Bank calculates the average monthly rent as a percentage of the estimated monthly mortgage payment in each of 54 metropolitan areas over the course of a three-month period.
The rents are for apartments, as reported by Reis, a New York-based real-estate research firm.Portland and Seattle had a calculated value of 77%, meaning that for every $1 that a buyer spent, a renter spent 77 cents. A clip from the WSJ ranking table:
The estimated mortgage payments are based on median sale prices in the same period, according to the National Association of Realtors. The bank adjusts the estimates to reflect the tax deduction for mortgage interest. It also figures the typical homeowner pays 0.4% of the home’s cost on insurance each year, and 1.5% of the cost on property tax.
If the resulting percentage is above 100%, buying is more favorable financially. If the percentage is below 100%, renting is.
Note that both Portland and Seattle saw increased renter values from 4th Quarter 2012 to 2013--perhaps because home prices increased faster than rents?
Originally created and posted on the Oregon Housing Blog.