Renting is better choice than buying in these eight cities, professors say

With U.S. home-price growth slowing but still surging, many who are looking to make the leap from renting to owning are finding themselves having to remain renters for at least a little while longer. According to a study from a pair of Florida universities, they may be better off this way for the time being — at least, if they live in one of eight major metro areas.

The newest iteration of the Beracha, Hardin & Johnson Buy vs. Rent Index, which is published quarterly by professors from Florida Atlantic University (FAU) and Florida International University (FIU), revealed that the monthly costs of homeownership in eight large cities are rising faster than monthly rents. These cities include Dallas; Denver; Houston; Kansas City, Missouri; Seattle; Miami; Pittsburgh; and Portland, Oregon.

In the case of the first five cities, consumers looking to build wealth — traditionally one of the biggest draws to owning a home — are better off renting and reinvesting the money they would have spent on homeownership into stocks or bonds.

“In these five metros, home prices have shot up so fast, and the potential for near-term price declines is just too great,” said Ken H. Johnson, Ph.D., a real estate economist and associate dean in FAU’s College of Business. “There is strong evidence that home prices in these markets are significantly higher than their respective long-term pricing trends.”

In the latter three cities, renting and reinvesting remains a better choice, Johnson noted, although the potential for price declines isn’t as harsh.

The Buy vs. Rent Index focuses on 23 metro areas across the U.S. by considering home prices, rents, mortgage rates, investment returns, home insurance and other costs to determine whether buying or renting presents a clearer path to wealth building. In the remaining 15 metros evaluated in the study — Atlanta, Boston, Chicago, Cincinnati, Cleveland, Detroit, Honolulu, Los Angeles, Milwaukee, Minneapolis, New York City, Philadelphia, San Diego, San Francisco and St. Louis — the authors of the index reported that consumers “shouldn’t agonize over the buy-rent decision.”

“People living in any of these areas can hardly go wrong, no matter what they decide,” said Eli Beracha, director of FIU’s Hollo School of Real Estate. “If they find a good home for sale at a fair price and plan on being there more than a few years, then buying certainly makes sense. If they find a better deal in the rental market, they can take that and still be confident in their ability to build wealth over the long term.”


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