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FAU Economists Say Consumers Are Better Off Renting

Katie Jensen
Sep 13, 2021

In many parts of the country where prices are skyrocketing, it’s more advantageous for consumers to postpone ownership.

KEY TAKEAWAYS
  • Strong consumer demand coupled with record-low mortgage rates and a shortage of properties for sale has pushed price levels to new limits.
  • In many parts of the country where prices are skyrocketing, it’s more advantageous for consumers to postpone ownership, according to second-quarter figures from the National Housing Index.
  • Prices are at or near their peaks in Dallas, Denver, Houston, Kansas City, Seattle and Miami. Researchers state that residents in those areas are better off renting and reinvesting the money they would have spent on ownership.
  • However, index co-author Eli Beracha warned that consumers should never attempt to rent and pocket the savings each month. “That’s one of the worst things you can do if your goal is to build a nest egg,” Beracha said.

The U.S. housing market is still sizzling after a white-hot summer with record-breaking home sales, despite the country’s economic uncertainty and lingering supply chain issues. The delta variant surged in August, causing U.S. job growth to stall and conditions to worsen for consumers who were already dealing with material shortages since the start of the pandemic. Nonetheless, the demand for homes in today’s market is higher than ever. 

Strong consumer demand coupled with record-low mortgage rates and a shortage of properties for sale has pushed price levels to new limits. In many parts of the country where prices are skyrocketing, it’s more advantageous for consumers to postpone ownership, according to second-quarter figures from the National Housing Index by researchers from Florida Atlantic University and Florida International University.

“In these housing markets, worries of a correction continue,” said Ken H. Johnson, Ph.D., co-author of the index and a real estate economist and associate dean in FAU’s College of Business. “At this time, buying carries considerable risk. Consumers can build wealth faster if they sit out these sharp price increases and instead rent a similar property and reinvest their savings in a portfolio of stocks and bonds.”

Prices are at or near their peaks in Dallas, Denver, Houston, Kansas City, Seattle and Miami, according to the Beracha, Hardin & Johnson Buy vs. Rent Index. Researchers state that residents in those areas are better off renting and reinvesting the money they would have spent on ownership. The index shows renting and reinvesting beats buying in Atlanta, Los Angeles, Pittsburgh, Philadelphia, San Diego, Minneapolis and Portland, Oregon. 

The FAU and FIU index also shows that buying and building equity makes the most sense in Chicago, New York, Honolulu, San Francisco, Cincinnati, Boston, Cleveland, Detroit, Milwaukee and St. Louis. FIU's index co-author, William Hardin, Ph.D., said. “In these metros, the cost of renting is outpacing the cost of ownership, resulting in some surprising recommended buys.” 

However, index co-author and director of FIU’s Hollo School of Real Estate, Eli Beracha, warned that consumers should never attempt to rent and pocket the savings each month. “That’s one of the worst things you can do if your goal is to build a nest egg,” Beracha said. “If you’re not inclined to invest your savings, you might as well buy a house, even at the top of the market, because owning a home would at least force you to save.”

 

Published
Sep 13, 2021
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