With really good home deals increasingly hard to find in the current market, a new report suggests it’s become virtually a toss-up as to whether buying or renting would create greater wealth in many parts of the country.
The Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index is produced quarterly by the faculties of Florida Atlantic University and Florida International University. It examines housing price appreciation from various U.S. markets, rent prices, mortgage rates, other investment data “to indicate why and when housing markets might be changing direction.” According to the latest BH&J, markets where buying is a better option are neck-in-neck with markets where renting might be the smarter approach for consumers.
“With exception for parts of the Midwest, most of the ‘buy low’ deals are out of the market,” said Ken Johnson, Ph.D., a real estate economist and one of the index’s creators in FAU’s College of Business. “This does not necessarily mean that it is a bad time to purchase. It simply means that potential purchasers should bargain more aggressively.”
The BH&J Index tracks 23 different metro areas, and this latest report finds 11 of them trending into buy territory, while 10 are moderately favoring renting. Both Dallas, Texas, and Denver, Colorado, are skewing strongly toward the rental end of the spectrum, which Johnson says puts increases two markets’ likelihood of a “near-term pricing event” such as “a decline in property prices, the likelihood of property transactions falling, property marketing times increasing, or a combination of all three.”
Johnson says fears of an impending housing bubble in a larger sense are most likely overestimated, “as the fundamentals underlying real estate valuation are much better today than in 2005 to 2007.” (For more discussion of this topic, check out the cover story for the December 2017 issue of DS News.)
Eli Beracha, Ph.D., co-creator of the index and associate professor in the Hollo School of Real Estate at FIU, said, “On average, both home and rental prices experienced modest gains in recent months, while financial markets continued to deliver healthy returns and mortgage rates remained low and stable.”
That’s good news for the industry and good news for investors. For more insights into the rental market, be sure to register for the 2018 Five Star Single-Family Rental Summit, happening March 19-21 at the Renaissance Nashville Hotel in Nashville, Tennessee. More details are available here.
You can see the full BH&J Index by clicking here.