According to the latest national index produced by Florida Atlantic University and Florida International University faculty, owning and renting are in a virtual tie in terms of wealth creation.
The Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index score for the U.S. as a whole of -.065 indicates that, on average, owning and building wealth through equity buildup narrowly outpaces renting a comparable property and investing in a portfolio of stocks and bonds. While the results vary widely by city, the last time the national BH&J score was at this point in a real estate cycle was right before the run-up in housing prices began in 1999.
“While the index gives consumers additional information over the age-old question of buy versus rent, it also tends to signal a directional change in housing pricing,” said Ken Johnson, Ph.D., a real estate economist and one of the index’s creators in FAU’s College of Business. “The last 30-plus years of data suggests that scores approaching 1 tend to signal a housing price downturn, while scores approaching -.30 usually signal an upturn in prices.”
The latest BH&J scores show 20 of 23 cities in the index moved at least marginally in the direction of rent territory. Four cities (Miami, Pittsburgh, Portland and Seattle) are beginning to dive noticeably into rent territory. Only three cities (Detroit, New York and St. Louis) trended more in the direction of ownership, with the remainder of the cities trending toward rent as the preferable option.
The researchers have significant concern for near term prices in the cities of Dallas and Denver, which are at individual record levels with their BH&J scores. One of index’s co-creators, William G. Hardin, Ph.D., director of the Hollo School of Real Estate at FIU, noted that both of these cities are high job growth markets where development may lag job growth.
“In short, there is a catch-up and then job growth weakens and housing gains go flat or negative in real terms,” Hardin said.
The BH&J Index is published quarterly and is available online at http://business.fau.edu/buyvsrent.
SOURCE: Florida Atlantic University College of Business