Renting Beats Out Buying a Home

BOCA RATON, Fla. – (By Dale King, Realty News Report) – If you think home prices are overblown, just check out the rental market. Real estate researchers at two South Florida universities say the cost of leasing a residential unit is higher than it should be in all 100 U.S. municipalities examined by those educators.

“Renting is the Better Option”

“Despite rapidly rising rents over the past two years, renting is the better option in all 100 markets surveyed,” says the new report from real estate pros at Florida Atlantic University and Florida International University.

The BH&J National Price-to-Rent Ratios monthly report measures the relative cost of owning compared to renting in 100 metropolitan areas nationwide.

The documentation is made up of so-called “price-to-rent ratios” that range from low single digits in some communities to as high as 32.08 percent in Spokane, Wash., the city where rent costs are most inflated. Austin, Texas, is Number 2, with rent prices estimated to be 29.62 percent over where they traditionally should be.

Fleshing out the top five are: Nashville, Tenn., 26.68 percent; Raleigh, N.C., 25.86 percent and Seattle, 24.58 percent.

“In markets with these high ratios, it is reasonable to expect price corrections because renting is much more favorable there,” said Ken H. Johnson, Ph.D., an economist in FAU’s College of Businesswho also co-authors separate monthly indices revealing the most overvalued U.S. markets for home pricesand rents. “Renting will slow down demand for homeownership, which will, in turn, affect prices.”

Actually,Washington, Texas, Utah and North Carolina each have two metros ranked in the top 10 overly inflated rent price list. In addition to Austin at Number 2, Texas lists the Dallas/Fort Worth metro at Number 7. Rents in D/FW are about 23.31 percent above the spot where they should be.

Among other big Texas towns, Houston ranks 12 on the rent inflation list, 22.01 percent over where prices should be; McAllen, No. 13, with a ranking of 21.95 percent; San Antonio, Number 24 with a rating of 18.10 and coming in at 81 out of 100 is El Paso, where rent prices are just a nudge over where they should be at 9.81 percent.

Figures for the Texas metros show the phenomenon of overinflated prices is relatively new. It wasn’t that long ago that rent prices in the Lone Star State’s big cities were actually below where they would traditionally be.

In Houston, said the professors, the so-called “discount” for rents below the anticipated mark were just under 10 percent in 2014, minus 5.93 in 2015, minus 1.73 percent in 2016 and minus 2.21 percent in 2017.

The numbers entered the positive realm for Houston in 2018 (.62 percent), then rose in 2019 to 1.69 percent, 7.42 percent in 2020 and 13.40 percent in 2021

As high as Austin is now, it ranked at minus 2.75 percent in 2018 and minus 3.20 in 2019. The ranking went positive in 2020 with 10.67 percent and 28.07 in 2021.

Dallas/Fort Worth registered its last negative figure in 2016 at minus 3.87 percent. The rankings since were .92 percent (2017), 4.38 percent (2018), 3.60 percent (2019), 9.01 percent (2020) and 15.40 percent (2021).

Johnson said price-to-rent ratios offer a more complete picture because they show the relative choice within a housing market between buying and renting.

The real estate researchers say many of the highest price-to-rent ratios are in Western U.S. markets. Even though Florida has some of the nation’s most overvalued housing and rental markets, the price-to-rent ratios are fairly low.

“The recent spike in metro Miami rents has helped keep the price-to-rent ratio in the area relatively near its average,” said William G. Hardin III, Ph.D., dean of FIU’s College of Business. “But it will be the production and delivery of new homes and apartments that will ultimately drive long-term housing affordability in the area.”

On the other end of the chart, Stamford, Conn. (4.52 percent); Virginia Beach, Va. (4.76 percent); Syracuse, N.Y. (4.90 percent) and Providence, R.I. (5.31 percent) have the four lowest ratios.

“In these markets, renting still beats buying, but the decision isn’t as clear-cut as it is in Spokane and other metros with much higher ratios,” said Eli Beracha, Ph.D., of FIU’s Hollo School of Real Estate.

Data for the study comes from the Zillow Home Value Index and the Zillow Observed Rental Index and includes single-family homes, townhomes, condominiums, co-ops and apartments.


Oct. 4, 2022 Realty News Report Copyright 2022


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