Rising rents and narrowing spreads between the cost of ownership and the cost of renting are making this a good time to buy a home in most cities in the U.S., according to the latest national index produced by Florida Atlantic University and Florida International University faculty.
“This is great news for home ownership and the financial returns to ownership,” 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. “We are not where we were in 2012, when nearly any purchase was a sound financial decision. However, overall, we are now in a situation where aggressive marketing from sellers combined with due diligence and sound negotiation from buyers is creating a housing market that’s more in line with what we’ve seen historically.”
Based on numbers from the end of the fourth quarter of 2016, 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 that home prices rose 5.8 percent year over year, the highest annual increase since June 2014.
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.
These latest numbers show 15 of the 23 cities in the index are solidly in buy territory, while another five are only marginally in rent territory. Only three cities — Dallas, Denver and Houston — present scores that are worrisome in terms of local housing market conditions.
“The scores for Dallas, Denver and Houston have worried us for some time now,” 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 last time we saw scores of this magnitude, housing market crashes soon followed.”
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.