San Jose metro area including Silicon Valley has the highest average rent of $1759 a month among 43 metro regions monitored by RealFacts. It went up 12.6%, the biggest year-over-year increase.

Rent in Sunnyvale was up 17.6% from last year to $1731. Rent in Cupertino went up 14% to $2168 and up in Palo Alto by 14% to $2450. Average rent increased 13.2% in Mountain View to $1812.

With the surge of rent, it makes more sense to buy now. A very important ratio, the purchase price to annual rent ratio, is a good indiator to help buyer make the decision. A price-to-rent ratio of 1 to 15 means that it’s much cheaper to buy than rent in a particular city. A ratio between 16 and 20 means that it’s more expensive to rent than to buy but buying may be better than renting “depending on personal circumstances, such as one’s tax bracket” Any ratio above 20 indicates that owning is much more costly than renting in a city.

The price to rent ratio for San Jose is 15 in January 2011, dropped to 12 in April and inched up to 16 in July. The ratio is higher in areas with better school as evidenced by the followings:

Sunnyvale: 23, Mountain View: 24, Cupertino: 27, Palo Alto: 31.

If you have kids at school age, the above ratio will need to be adjusted to factor into the tuition and it could explain why it still makes sense to buy in those areas.

If you are looking to buy investment property and seek good cash flow for your investment property, or if you are first home buyer who does not want to pay much more than your current rent,  San Jose’s ratio looks much better.