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Rent vs. Buy

The scale tips towards ‘rent’ for the first time since 1999!

United States housing markets are now ‘in rent territory’ when considered as a whole, according to FAU and Florida International University faculty. This means that renting and reinvesting money that may previously have been spent on owning a home, will tend to financially outperform owning and building equity.

This is a big deal – it has been 19 years since the U.S. was, on average, in this position – way back in 1999. Then in January 2010 the housing market crossed back over into ‘ownership territory’, and have stayed that way until now.

As it stands, 16 our of the 23 cities covered in the Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index are in rent territory, including Miami. All of these cities are likely to be experiencing lessening pressure on the demand for ownership.

What does this mean for the future of U.S. housing prices?

The downward pricing pressure implies that in some markets the annual home pricing increases will start to slow down. The Midwest and Northeast appear to be offering the best buys, with Cleveland and Chicago showing the lowest and best ownership scores. Of all 23 cities covered in the index, Dallas has the most worrying score of .888.

According to Ken Johnson Ph.D., a real estate economist and one of the index’s creators in FAU’s College of Business, “Across all of the data for the Index going back to 1982, only 49 times has a market in any given quarter been at this score or higher. All of these markets experienced significant price declines in their residential housing prices.”

Currently, perhaps the biggest reason for the United States moving into ‘rent territory’, is the fact that the cost of ownership is quickly outpacing the cost of renting a similar property, said Eli Beracha, Ph.D., co-creator of the index and director of the Hollo School of Real Estate at FIU.

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Sources: https://www.floridarealtors.org

Posted in Uncategorized on September 4, 2018 at 10:38 am.

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