Study: Renting Beats Buying in Vast Majority of U.S.
According to the most recent study of housing data, it pays to rent.
Despite widespread home price declines, renting still makes more sense than owning in the vast majority of U.S. housing markets, according to researchers at Florida Atlantic University and Florida International University.
The Beracha, Hardin & Johnson National Price-to-Rent Ratios Monthly Report for January shows that homes still are selling for more than they should in 97 of 99 markets, an indication that renting is more favorable than homeownership.
“Home prices are down, but they are still too high and near record levels so we expect further price corrections in the future,” said Ken H. Johnson, Ph.D., a co-author of the report and an economist in FAU’s College of Business. “While rents also are on the rise, consumers are better off financially in most areas if they hold off buying until home price declines level off."
Metro areas such as McAllen, Texas; San Jose, California; San Francisco; and Honolulu are among the most renter-friendly markets nationwide with price-to-rent ratios well above the local historic averages. Those areas could face sharp price reductions in the months ahead.
A market’s price-to-rent ratio is measured by dividing the average home price by the average annual rent. The calculation is compared to the historic price-to-rent ratio for the market to determine if owning or renting is preferred. Price-to-rent ratios above the local historic average indicate renting is better, while scores below the historic average suggest buying is better.
“Traditionally homeowners have been able to build wealth faster than renters, but those who rent can still build a sizable nest egg if they are disciplined," said Eli Beracha, Ph.D., a co-author and director of FIU's Hollo School of Real Estate. “In order to replicate equity creation, renters should invest the money they otherwise would have spent on maintaining their homes."
Only two markets (Springfield, Massachusetts and Cape Coral-Fort Myers) have negative price-to-rent scores or discounts, implying owning is, on average, better than renting in financial terms.
Renters in Springfield paid an average of about $1,615 in January, a year-over-year increase of 14.73 percent, leading all 100 markets analyzed by the Waller Weeks & Johnson Rental Index.
Meanwhile, Cape Coral is still recovering from the effects of Hurricane Ian in September. The Category 4 storm destroyed or badly damaged homes and rentals that have since been taken out of the housing stock, worsening the supply problem that already existed in Southwest Florida.
“In these two markets, home prices are falling, if only slightly, while rents are rising at an astounding rate,” Johnson said.
The BH&J monthly report is produced by Johnson, Beracha and FIU College of Business Dean William Hardin, Ph.D. It combines raw housing prices and rents from Zillow’s Housing Value Index and Zillow's Observed Rental Index.
The shortage of both rental and for-sale units is driving high rents and home prices. The construction of needed units will help bring the housing crisis under control, the researchers said.
-FAU-
Latest News Desk
- FAU Researcher Lands Grant for Personalized Cancer Radiation TherapyThe project, led by Wazir Muhammad, Ph.D., will employ AI, specifically deep reinforcement learning, to analyze multimodal data, improving cancer characterization and treatment for better patient outcomes.
- FAU/Mainstreet Poll: Harris Narrows Trump's Lead to 5 PointsNew FAU poll highlights current voter leanings that were examined immediately before U.S. President Joe Biden announced he was leaving the race.
- FAU's Executive MBA Among Top 50 MBA ProgramsFlorida Atlantic University's College of Business Executive MBA program was among the Top 50 Executive MBA programs in the country, according to 2024 rankings from Fortune.
- FAU Online MBA Program Climbs in RankingsFlorida Atlantic University's College of Business climbed up in the rankings for the Top 50 Online MBA Programs in the country, according to the 2024 rankings from The Princeton Review.
- National Poll Shows Small Trump Bump Post-Assassination AttemptA new poll of the battleground states of Georgia and Virginia highlights current voter leanings that were examined immediately before and after the attempted assassination of former U.S. President Donald Trump.
- FAU Nursing Faculty Named Fellows of the American Academy of NursingThree faculty members in the Christine E. Lynn College of Nursing have been named 2024 Fellows of the American Academy of Nursing for their extraordinary contributions to improve health locally and globally.