Newswise — The latest national housing market index produced by Florida Atlantic University and Florida International University faculty indicates it is becoming more favorable for renters than buyers in terms of wealth accumulation.
The Beracha, Hardin & Johnson Buy vs. Rent (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.
According to the latest BH&J Index, as of the end of the first quarter of 2015, the housing market in the U.S. and all cities in the index are trending either closer to renting being the superior option or strictly favoring renting over purchasing a home.
Three cities (Dallas, Denver and Houston) are clearly in rent territory, with property pricing clearly out-pacing rents, meaning buyers should proceed with strong caution.
In contrast to the latest Standard & Poor’s/Case-Shiller Home Price Indices, which recently reported a five percent year-over-year property appreciation rate, the BH&J Index suggests that potential purchasers in many cities around the U.S. should begin to bargain more aggressively.
“Potential buyers should be cognizant that ‘the deals’ are out of the marketplace and that it is essentially a tossup between rent and ownership as to which way will, on average, provide greater wealth accumulation,” 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. “Miami, in particular, deserves attention as it has been trending toward rent territory for several reporting periods. In Miami, potential buyers should seek to bargain more aggressively.”
Seven cities (Miami, Honolulu, Los Angeles, Pittsburgh, Portland, San Francisco and Seattle) 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.
Four cities (Chicago, Cincinnati, Cleveland and Detroit) remain in strong buy territory with scores that have historically favored wealth accumulation through home ownership.
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.
- FAU -
About Florida Atlantic University Florida Atlantic University, established in 1961, officially opened its doors in 1964 as the fifth public university in Florida. Today, the University, with an annual economic impact of $6.3 billion, serves more than 30,000 undergraduate and graduate students at sites throughout its six-county service region in southeast Florida. FAU’s world-class teaching and research faculty serves students through 10 colleges: the Dorothy F. Schmidt College of Arts and Letters, the College of Business, the College for Design and Social Inquiry, the College of Education, the College of Engineering and Computer Science, the Graduate College, the Harriet L. Wilkes Honors College, the Charles E. Schmidt College of Medicine, the Christine E. Lynn College of Nursing and the Charles E. Schmidt College of Science. FAU is ranked as a High Research Activity institution by the Carnegie Foundation for the Advancement of Teaching. The University is placing special focus on the rapid development of critical areas that form the basis of its strategic plan: Healthy aging, biotech, coastal and marine issues, neuroscience, regenerative medicine, informatics, lifespan and the environment. These areas provide opportunities for faculty and students to build upon FAU’s existing strengths in research and scholarship. For more information, visit www.fau.edu.