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Better off Renting? BH&J Buy vs. Rent Index Shows Renters Create More Wealth than Buyers in Many U.S. Housing Markets

BOCA RATON, Fla. (June 6, 2018) – With housing markets around the U.S. nearing the peak in their cycles, renters who reinvest their money have an increasingly better chance at creating wealth than individuals who purchase a home, according to the latest national index produced by Florida Atlantic University and Florida International University faculty.

This marginal move in the Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index shows an increased possibility of significant price retractions in many metro areas around the country, while other markets’ pricing can be expected to remain stable based on their index scores.

“On the heels of information concerning slowing housing starts, rising mortgage rates, decreased demand and unsustainable price increases, these numbers provide additional evidence that housing markets around the country are slowing, resulting in many to opt for renting,” said Ken Johnson, Ph.D., a real estate economist and one of the index’s creators in FAU’s College of Business.

Of the 23 separate metro areas in the BH&J Index, many are nearing the top of their current housing cycle, meaning they are above their long-term pricing trend. These cities include Atlanta, Denver, Dallas, Honolulu, Houston, Kansas City, Los Angeles, Miami, Minneapolis, Pittsburgh, Portland, San Diego, San Francisco, Seattle and St. Louis.

Other cities are below their long-term pricing trend — meaning buying and building equity is the superior option — including Boston, Chicago, Cincinnati, Cleveland, Detroit, Milwaukee, New York and Philadelphia.

The biggest contributor to the rising cost of ownership is rising house prices, said Eli Beracha, Ph.D., co-creator of the index and associate professor in the Hollo School of Real Estate at FIU.

“The current scores driving the markets in the direction of renting and reinvesting appear to be the results of higher mortgage rates, increase in returns, on average, in the stock market, and the cost of ownership, which includes your mortgage payment, taxes, insurance, maintenance, etc.,” Beracha said. “All of these costs are rising faster than the cost of renting a comparable property. Therefore, renters who take the money they’re saving each month and reinvest it are going to build wealth faster than those who buy a home, on average.”

So, what does this mean for those intent on purchasing a home? Bargain aggressively. 

“Don’t be afraid to walk away from a deal in which you are not comfortable with the price,” Johnson said. “Never buy because you are afraid that you will not be able to afford to buy later. This was the attitude that many took in 2007, resulting in market collapse.”

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.

 

© Last Updated6/5/18