The national index released by Florida Atlantic University [1] (FAU) and Florida International University [2] (FIU) faculty point out that some real estate markets are peaking while others are in a different pricing bubble. The index summarizes 23 major metropolitan housing markets and the U.S. real estate market as a whole.
According to The Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index [3], estimates renting and reinvesting in more traditional financial assets as well as homeownership and equity appreciation. The index uses scoring that indicates strong downward pressure if it reached a score of one.
Among the 23 metropolitan areas surveyed, two cities are steadily approaching a score of one. Dallas leads the charge at (.92) followed by Denver at (.77). Strong economies in both these areas are responsible for the surge in prices, the report noted.
Ken Johnson, one of the index's creators and Associate Dean and Professor in FAU's College of Business, said that the residential real estate prices in Dallas “are significantly above their long-term pricing trend and price corrections are anticipated in the near future. ”
"Both Dallas and Denver are significantly overheated," he said.
The current upward pattern in property appreciation is nearing an end, according to Eli Beracha, co-creator of the index and Director of the Hollo School of Real Estate at FIU, as a result of which, prices are still appreciating in both metros but at a decreasing rate.
Over the last quarter, of the 23 cities in the BH&J Index, 20 gravitated toward renting, indicating that these markets see it as a viable option for wealth creation. However, Honolulu, Miami, and Seattle—cities that were predominantly in the renting space—reverted to the homeownership territory on a marginal basis.
"This does not mean that these markets are exhibiting clear buy signal but rather they appear to be pulling back from the brink as buyers begin to negotiate more aggressively in these areas," said William G. Hardin, Director of FIU's Jerome Bain Real Estate Institute and Associate Dean of the Chapman Graduate School of Business.
Click here [4] to read the detailed report.