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Home prices are rapidly escalating in cities like Dallas, Texas, where consumers are better off renting or reinvesting their money, according to Beracha, Hardin & Johnson Buy Vs. Rent Index.
The index, created by professors at Florida Atlantic University and Florida International University as a national housing barometer, accounts for first quarter figures in 2021. The index also determines whether consumers will save more money by either buying a home and building equity or renting a home and investing their savings in a portfolio of stocks and bonds.
In the first three months of 2020, Dallas was the best US metro to find affordable rent, while the housing market was heating up in Denver, Houston, Kansas City, Miami and Seattle. In other metros, the buy or rent decision was not as clear cut. However, renting seems to be the better option in Atlanta, Los Angeles, Philadelphia, Pittsburgh, Portland and San Diego.
The BH&J scores for these areas suggest they are the most exposed to price corrections in the event of a real estate downturn,” said Ken H. Johnson, co-author of the index, real estate economist, and associate dean in FAU’s College of Business. “Buyers are bidding up home prices to near peak levels. It is probably wiser to rent and reinvest in Dallas and these other markets at this point in time.”
Consumers that are looking to buy a home and build equity should consider settling in Chicago, New York, or Cleveland, according to the index. “In those three metro areas, prices are rising more moderately, leaving room for future price appreciation,” Johnson said. Buying is also more wise than renting in Boston, Cincinnati, Detroit, Honolulu, Milwaukee, Minneapolis, San Francisco and St. Louis.
Many people are eager to buy a home due to the historically-low mortgage rates, but professors say the market will take a hit if rates rise.
“All markets are exposed to the potential for high interest rates as we are at historic lows,” said FIU’s William Hardin, Ph.D., and index co-author. “Homeownership traditionally was considered the far better option than renting and reinvesting, but the historic housing crash from 2006-2011 changed that perception for many Americans. The BH&J Buy vs. Rent Index, first published in 2013, shows that even when home prices are rising, renting and reinvesting can be equally or more lucrative for disciplined savers.”
The index accounts for home prices, rents, mortgage rates, investment returns, property taxes, insurance and home maintenance costs. To read more information from the index, click here.