BOCA RATON, Fla. – (By Dale King, Realty News Report) — Researchers from two South Florida universities have determined that conditions in all 100 of the largest U.S. housing markets favor renting over buying.
But the professors from Florida Atlantic University in Boca Raton and Florida International University in Miami say metros in Texas, Washington, Tennessee and North Carolina are the nation’s most renter-friendly communities. Despite rapidly rising rents, prospective buyers in many U.S. markets could build long-term wealth as fast or faster by renting a similar single-family property and investing the money that otherwise would have been spent on owning.
In fact, McAllen, Texas, on the state’s southern border, ranks No. 1 in the Beracha, Hardin and Johnson Price-to-Rent Report with a premium of 23.33 percent. That percentage represents the amount above the average price-to-rent ratio for the area.
In other words, consumers in McAllen, on average, have been paying $10.58 to purchase a home for every $1 in annualized rent. But by the end of September, they were actually paying $13.05 — and the difference between those two numbers is called the “premium.”
Among the 100 metros studied by the FIU and FAU profs, McAllen offers renters the most bang for the buck because the premium between buying and renting is the highest among the surveyed regions.
In truth, four metropolitan areas in the Lone Star State are among the top 11 locations that proffer bargain rental numbers.
While McAllen in No. 1, Austin chimes in at No. 5 with a rental premium of 22.32. The professors have been following Austin home prices for the past year or more, ranking them among the highest in the nation.
It was only in September that the South Florida academics pointed out that average home prices are falling in 39 of the 100 largest U.S. housing markets – and 18 more were expected to follow suit.
Austin was No. 2 on that list with an average drop of 5.5 percent in home prices. Others on the drop roster were San Jose, Calif., No. 1 at 6.3 percent, San Francisco, No. 3 at 4.4 percent, Boise, Idaho, No. 4 with a price drop of 4.2 percent and Salt Lake City, Utah, with a slide of 3.8 percent in single-family residence prices.
Other Texas communities offering good tidings for renters this holiday season include Houston, No. 8 with a price-to-rent premium of 18.57 percent and Dallas/Fort Worth, No. 11 with a premium of 17.55 percent.
Spokane, Wash. (23.32 percent premium), Nashville, Tenn. (21.92 percent) and Durham, N.C. (21.72 percent) rounded out the top five. Charlotte, Seattle and Raleigh completed the Top 10.
Oddly, San Jose, Calif., entered the list at No. 100. It was the only community where the expected and actual rent prices were virtually the same. San Jose’s premium percentage was 0.01.
The monthly real estate report measures the ratio of a market’s average home price to that market’s average annual rent, allowing for a relative financial comparison between owning and renting. A higher price-to-rent ratio favors renting over owning because it implies ownership is relatively more expensive.
Right now, “all measured markets favor renting over buying, and that reflects the fact that home prices generally are rising faster than rents,” said Ken H. Johnson, Ph.D., an economist in FAU’s College of Business.
While the report helps compare renting and buying, it does not address housing affordability, said Eli Beracha, Ph.D., of FIU’s Hollo School of Real Estate.
“When looking at the data as a whole and comparing it to the pace of construction, it is clear that we are not building homes for ownership at a fast-enough pace to keep up with the demand for ownership over renting,” he added.
William G. Hardin III, Ph.D., dean of FIU’s College of Business, said the results showing that renting is better than buying comes with a caveat. “We stress the need for families that rent to save money that they would otherwise have invested in homeownership, such as a down payment, maintenance, taxes and insurance.”
All three researchers agree there are three options that all families face: renting and investing money that would have been put into ownership; owning and building equity; and renting, but not saving. The first two produce comparable results in terms of wealth creation. The third typically destroys wealth.
Johnson put it this way: “If you’re going to rent and then spend your savings on beer and cookies, you might as well just buy a home despite the current high prices because ownership is at least a forced savings plan.”
The buy vs. rent report combines findings from the top 100 U.S. housing markets and the Waller, Weeks, and Johnson Rental Index to produce price-to-rent estimates. Raw data for all reports come from Zillow’s Zillow Home Value Index and Zillow Observed Rental Index.
Nov. 17, 2022 Realty News Report Copyright 2022
Photo credit: Ralph Bivins, Realty News Report Copyright 2022
THE RALPH BIVINS PROJECT PODCAST
LISTEN: The RALPH BIVINS PROJECT podcast with Lilly Golden of Evergreen Commercial Realty
LISTEN: The RALPH BIVINS PROJECT podcast with Ryan LeVasseur of Rice Management
LISTEN_ THE RALPH BIVINS PROJECT podcast with Gregg Logan of RCLCO.
LISTEN: THE RALPH BIVINS PROJECT podcast with Cameron Colvill of Whitebox Real Estate
LISTEN: THE RALPH BIVINS PROJECT podcast with Carlos Bujosa of Transwestern
File: Good Places to Rent