Housing Market Trends More Favorable to Buying than Renting
The housing market index produced by FAU and FIU faculty indicates the country as a whole is moving deeper into buy territory, as owning a home is expected to produce greater wealth, on average, than renting.
According to the latest Beracha, Hardin & Johnson Buy vs. Rent Index, as of the end of the second quarter of 2015, the housing market in the United States as a whole is trending closer to buying being the superior option.
By james-hellegaard | 9/17/2015
The latest national housing market index produced by Florida Atlantic University and Florida International University faculty indicates the country as a whole is moving deeper into buy territory, as owning a home is expected to produce greater wealth, on average, than renting.
According to the latest Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index, as of the end of the second quarter of 2015, the housing market in the United States as a whole is trending closer to buying being the superior option.
“The U.S. as a whole is still in clear buy territory,” said Ken Johnson, Ph.D., a real estate economist who is one of the index’s authors and an associate dean of graduate programs and professor in FAU’s College of Business. “The cities of Cincinnati, Chicago, Cleveland and New York City are deep into buy territory.”
Two cities that have been edging into rent territory – Miami and Portland – have “pulled back from the edge,” Johnson said. “It’s coming back toward a toss-up between buying and renting. That’s a good sign for home pricing in Miami and Portland as it suggests prices are going to level off in these metro areas.”
Dallas and Denver dipped slightly deeper into rent territory, making renting the preferred method for wealth accumulation, on average. Houston, however, has plunged alarmingly into historic levels of rent territory.
“Houston is particularly worrisome coming in with a score of .633,” Johnson said. “Rapid property appreciation combine with shaky economic prospects to put Houston on the watch list for a near-term dip in housing pricing.”
Dallas and Houston “have faced relatively flat income growth and rising index scores that strongly favor renting,” said Johnson.
Honolulu, Pittsburgh, San Francisco and Seattle remain toss-up cities, implying that they are at or near the indifference point between ownership and renting. Here the spread between monthly rent payments and ownership payments appears to be at a point where neither ownership nor renting is statistically favored.
A video interview with Johnson discussing the results of the latest BH&J Index can be viewed here on the College of Business’ YouTube page.
The BH&J Index attempts to answer one of the toughest questions American consumers face: Is it better to rent or buy a home in today’s housing market? The quarterly index is designed to signal whether current market conditions favor buying or renting a home in terms of wealth creation over a fixed holding period in a particular market relative to historical market conditions and alternative investment opportunities. It examines the entire housing market in the United States and isolates the markets of 23 key cities.
The index conducts a “horse race” comparison between an individual that is buying a home and an individual that rents a similar quality home and reinvests all monies otherwise invested in homeownership. Johnson’s collaborators in this ongoing independent research are Eli Beracha, Ph.D., assistant professor in the T&S Hollo School of Real Estate at FIU and William G. Hardin III, Ph.D., director of the T&S Hollo School of Real Estate at FIU’s College of Business.
The index’s results are standardized between 1 and -1, with negative scores favoring ownership and positive scores favoring renting. The BH&J Index provides information on both the direction and health of varying housing markets, as well as collateral information for real estate professional, developers, lenders and housing policy makers.
The BH&J Index is published quarterly and is available online at http://business.fau.edu/buyvsrent. Due to data availability and the time necessary to calculate the most current index values, the index is produced two months after the end of the quarter.