BH&J Latest Summary
MEDIA CONTACT: Jim Hellegaard
Index Shows Property Appreciation Slowing as Upward Pressure on Housing Demand Declines
BOCA RATON, Fla. (December 10, 2019) – Property appreciation is slowing in housing markets across the country as upward pressure on the demand for homeownership declines, according to the latest national index produced by Florida Atlantic University and Florida International University faculty.
“Unraveling our model, we see that property price appreciation is decelerating in most of our measured 23 markets,” said Eli Beracha, Ph.D., a real estate professor in the Hollo School of Real Estate at FIU and one of the creators of the Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index. “Looking back over the past few quarters, we see slowing property appreciation, which suggests that the rapid property appreciation witnessed in recent quarters is almost certainly over.”
The index measures the difference in wealth creation between renting and reinvesting versus owning the same property and building equity. BH&J scores approaching +1 strongly suggests individuals would be better off renting and reinvesting as opposed to owning and building equity. Scores approaching -1 favor home ownership over renting. Scores close to 0 suggest a tossup in terms of wealth creation between the two alternatives.
In 20 of the 23 metropolitan markets tracked in the BH&J Index upward pressure on the demand for homeownership is declining.
“In all but three markets – Atlanta, Chicago and Detroit – BH&J scores are declining from near record levels,” said Ken H. Johnson, Ph.D., a real estate economist and one of the creators of the BH&J Index in FAU’s College of Business. “This occurred prior to the housing crash a decade ago as well; however, current macro market factors, high employment and low mortgage rates, among others, should serve to buoy prices. There is a low probability that we will experience a catastrophic housing crash.”
What is going to happen next in the nation’s housing markets is an open question. Will housing markets plummet as they did over a decade ago resulting in a national crisis or will housing markets continue to appreciate at nearly record levels?
Both Johnson and Beracha agree that a likely scenario for the nation’s housing market is a “bumpy” ride back to a long-term property pricing trend.
“Home prices have historically been cyclical around a long-term trend,” Beracha said. “This time around should be no different and this cycle should not be as extreme as the previous housing cycle.”
According to Johnson, what is most likely is that “we will see slightly positive to slightly negative property appreciation rates this time around as the nation’s housing markets revert to their long-term means.”
The BH&J Index is published quarterly and is available online at https://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.