BH&J Latest Summary
FAU Buy vs. Rent Index Shows Record High Home Prices in U.S. Housing Market Being Supported by Rising Rents
Findings Show Stable Housing Market but Looming Affordability Issue
BOCA RATON, Fla. (Dec. 13, 2016) – Record high home prices in the U.S. housing market are being driven upward by rising rents in cities across the country, according to the latest national index produced by Florida Atlantic University and Florida International University faculty.
“With both significant increases in rents and property prices, the issue of housing affordability is quickly becoming a major concern again across many areas of the country,” 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. “Given the country’s experience during the run-up to the housing crash in 2008, it’s doubtful that we will again respond to the housing affordability issue with easy and flexible access to credit.”
Based on numbers from the end of the third quarter, the latest Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index comes on the heels of the latest S&P/Case-Shiller Home Price Index, which found home prices at a new all-time record and surpassing the highs from before the financial crisis.
Both indexes incorporate property appreciation from housing markets around the country, but unlike Case-Shiller, the BH&J Index adds additional rental, maintenance and alternative investment data streams, among others, to indicate when and why housing markets might be changing direction.
Rents, across all 23 cities in the BH&J Index and the country as a whole, are rising marginally slower than the rate of property price appreciation, resulting in all areas moving ever so marginally in the direction of being rent friendly. Over the last three years, the rate of rent increases are nearly matched by the rate of property price increases resulting in the conclusion that property prices are being supported by rent increases. This suggests stable housing markets around the country.
“Increasing employment and increasing income combine with rising rents to provide a sound economic environment for the country’s housing markets, in general,” said Eli Beracha, Ph.D., co-author of the index and assistant professor in the T&S Hollo School of Real Estate at FIU.
The U.S. as a whole and 15 of the 23 cities measured by the index are in buy territory implying that ownership is, on average, a better vehicle for creating wealth in these areas. These 15 cities are Atlanta, Boston, Chicago, Cincinnati, Cleveland, Detroit, Honolulu, Kansas City, Los Angeles, Milwaukee, Minneapolis, New York, Philadelphia, San Diego and St. Louis.
Eight of the 23 measured cities are in rent territory, suggesting that renting and reinvesting in a portfolio of stocks and bonds will, on average, produce more wealth for a family. Three of these cities – Dallas, Denver and Houston – remain a concern. While prices in these cities are rapidly rising – up over the last three years between 25 percent and 35 percent – corresponding rents are lagging behind, rising only 15-20 percent over the same period. However, while the BH&J scores for Dallas, Denver and Houston are alarming, they are nowhere near the dangerous levels experienced in cities like Miami and San Francisco at the height of the housing bubble.
While the market seems stable as a whole, the increase in real estate prices and rents across the country would seem to point to a looming affordability issue given that the easy financing that helped support high prices before the 2008 market collapse are not an option for most anymore.
The BH&J Index and other FAU real estate activities are sponsored by Investments Limited of Boca Raton. 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.
To the knowledge of the co-developers (Beracha, Hardin and Johnson) of the BH&J Index, there is no perfect information source that guarantees optimal results when choosing between buying and renting. Accordingly, the BH&J Index, and any sponsoring university or universities, DO NOT make any such claim. Thus, viewers/consumers of this information use it at their own risk and agree to hold Eli Beracha, William G. Hardin III, Ken H. Johnson, and any sponsoring universities, harmless.