BH&J Buy vs. Rent Index Shows Good Deals Harder to Find as U.S. Housing Market Remains Slightly in Buy Territory
The really good deals on homes are becoming increasingly harder to find as the U.S. housing market remains ever so slightly in buy territory, according to the latest national index produced by Florida Atlantic University and Florida International University faculty.
The Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index shows it is a virtual toss-up as to whether buying or renting would produce greater wealth, on average.
“With exception for parts of the Midwest, most of the ‘buy low’ deals are out of the market,” said Ken Johnson, Ph.D., a real estate economist and one of the index’s creators in FAU’s College of Business. “This does not necessarily mean that it is a bad time to purchase. It simply means that potential purchasers should bargain more aggressively.”
Of the 23 separate metro areas in the BH&J Index, 11 are slightly to moderately in buy territory, while 10 metro areas are slightly to moderately in rent territory. Two cities, Dallas and Denver, remain deep in rent territory, suggesting the potential for what Johnson calls a near-term pricing event. This could indicate a decline in property prices, the likelihood of property transactions falling, property marketing times increasing, or a combination of all three.
“The question of another bubble continues to come up, given recent past events,” Johnson said. “However, fears of a bubble are probably overestimated as the fundamentals underlying real estate valuation are much better today than in 2005 to 2007.”
One of index’s co-creators, William G. Hardin, Ph.D., director of the Hollo School of Real Estateat FIU, said the market is generally stable nationally with relative indifference in the home acquisition or rental decision. This has been the case for some time and reflects positive market fundamentals, Hardin said.
Based on numbers from the end of the third quarter of 2017, the latest BH&J Buy vs. Rent Index follows recent S&P CoreLogic Case-Shiller 20-City Home Price Index scores, which showed home prices rose 6.2 percent over the past year, indicating consistent demand at a time when the inventory of homes has been persistently scarce.
Both the BH&J Index and Case-Shiller Home Price Index employ housing price appreciation from markets around the U.S. Unlike Case-Shiller, the BH&J Index includes additional sources such as rent prices, mortgage rates and alternative investment data streams, among others variables, to indicate why and when housing markets might be changing direction.
“On average, both home and rental prices experienced modest gains in recent months, while financial markets continued to deliver healthy returns and mortgage rates remained low and stable,” said Eli Beracha, Ph.D., co-creator of the index and associate professor in the Hollo School of Real Estate at FIU.
The BH&J Index is published quarterly and is available online at http://business.fau.edu/buyvsrent. Due to data availability and the time necessary to calculate the most current index values, the index is produced two months after the end of the quarter.
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About Florida Atlantic University
Florida Atlantic University, established in 1961, officially opened its doors in 1964 as the fifth public university in Florida. Today, the University, with an annual economic impact of $6.3 billion, serves more than 30,000 undergraduate and graduate students at sites throughout its six-county service region in southeast Florida. FAU’s world-class teaching and research faculty serves students through 10 colleges: the Dorothy F. Schmidt College of Arts and Letters, the College of Business, the College for Design and Social Inquiry, the College of Education, the College of Engineering and Computer Science, the Graduate College, the Harriet L. Wilkes Honors College, the Charles E. Schmidt College of Medicine, the Christine E. Lynn College of Nursing and the Charles E. Schmidt College of Science. FAU is ranked as a High Research Activity institution by the Carnegie Foundation for the Advancement of Teaching. The University is placing special focus on the rapid development of critical areas that form the basis of its strategic plan: Healthy aging, biotech, coastal and marine issues, neuroscience, regenerative medicine, informatics, lifespan and the environment. These areas provide opportunities for faculty and students to build upon FAU’s existing strengths in research and scholarship. For more information, visit www.fau.edu.