Study: Markets in Texas, Washington are Best for Renters

Home Prices Relatively Higher Than Rents in All 100 Markets Surveyed

All 100 of the largest U.S. housing markets favor renting over buying, but metros in Texas, Washington, Tennessee and North Carolina are the nation’s most renter-friendly, according to the latest study from researchers at Florida Atlantic University and Florida International University.

McAllen, Texas ranks No. 1 in the Beracha, Hardin and Johnson Price-to-Rent Report with a premium of 23.33 percent – that’s the amount above the average price-to-rent ratio for the area.

McAllen consumers, on average, have paid $10.58 to purchase a home for every $1 in annualized rent, but at the end of September they actually paid $13.05 – and the difference between those two numbers is the premium. 

The monthly report measures the ratio of a market’s average home price to that market’s average annual rent, allowing for a relative financial comparison between owning and renting. 

A higher price-to-rent ratio favors renting over owning because it implies ownership is relatively more expensive. 

Spokane, Washington (23.32 percent premium); Nashville, Tennessee (21.92 percent); Durham, North Carolina (21.72 percent); and Austin, Texas (20.66 percent) round out the top five U.S. premiums.

The full rankings can be found here. 

The buy vs. rent report combines findings from the Top 100 U.S. Housing Markets and the Waller, Weeks, and Johnson Rental Index to produce price-to-rent estimates. Raw data for all reports come from Zillow’s Zillow Home Value Index and Zillow Observed Rental Index.

“All measured markets favor renting over buying, and that reflects the fact that home prices generally are rising faster than rents,” said Ken H. Johnson, Ph.D., an economist in FAU’s College of Business. 

While the report helps compare renting versus buying, it does not address housing affordability, according to Eli Beracha, Ph.D., of FIU’s Hollo School of Real Estate.

“When looking at the data as a whole and comparing it to the pace of construction, it is clear that we are not building homes for ownership at a fast-enough pace to keep up with the demand for ownership over renting,” Beracha said.

William G. Hardin III, Ph.D., dean of FIU’s College of Business, said the results showing renting better than buying come with a caveat. 

“We stress the need for families that rent to save money that they would have otherwise invested in homeownership, such as a down payment, maintenance, taxes and insurance,” Hardin said.

All three researchers agree there are three options that all families face: renting and investing money that would have been put into ownership; owning and building equity; and renting but not saving. The first two produce similar results in terms of wealth creation. The third typically destroys wealth.

“If you’re going to rent and then spend your savings on beer and cookies, you might as well just buy a home despite the current high prices because ownership is at least a forced savings plan,” Johnson said. 

-FAU-