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Buy vs. Rent Index - Real Estate Initiative

BH&J Index Methodology

 

Download the BH&J Index Methodology here.

 

The methodology for calculating the quarterly scores for the varying real estate markets is very straight forward. Lessons from Over 30 Years of Buy versus Rent Decisions: Is the American Dream Always Wise? is published in Real Estate Economics. The manuscript explains how to calculate wealth accumulation from either renting and reinvesting or purchasing and building equity.

Current BH&J Index scores are simply the ratio of wealth accumulated through renting and reinvesting to wealth accumulated through home equity. These scores are then mapped to boundaries between 1 and -1. Scores approximating 1 strongly favor renting and represent three standard deviations away from indifference between ownership and renting. Scores approximating -1 strongly favor ownership and represent three standard deviations away from indifference between ownership and renting. Scores approximating 0 represent the indifference point between renting and ownership in terms of wealth accumulation.

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