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BH&J Buy vs. Rent Index Predicts a Peak in US Real Estate Cycle

Current signs indicate that most U.S. housing markets are approaching a peak in the real estate cycle, but there’s little evidence to suggest prices will plummet as they have in the past, according to the latest national index produced by Florida Atlantic University and Florida International University faculty.

Embedded housing pricing indices in the Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index show housing prices, which have been rising steadily since 2012 in most parts of the country, have begun to slow.

“Housing markets are slowing, suggesting that we are nearing a peak in housing markets around the U.S.,” said Ken Johnson, Ph.D., a real estate economist and one of the index’s creators in FAU’s College of Business. “But this is good news, as we are pulling back from the brink, unlike we did in 2007.”

Of the 23 separate metro areas in the BH&J Index, 13 are slightly to moderately in buy territory, while 10 metro areas are slightly to moderately in rent territory.

Based on numbers from the end of the fourth 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 6.3 percent over the past year, the fastest 12-month pace in more than three years, as potential home buyers jostled over a limited inventory of available properties.

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.

“Our data indicates that prices are above their 40-year trend but not significantly so as they were in 2007,” said Eli Beracha, Ph.D., co-creator of the index and associate professor in the Hollo School of Real Estate at FIU. “Rather than a crash, I anticipate slower growth in prices accompanied by longer marketing times for sellers and increasing inventories, which should bring prices back in conjunction with their 40-year trend.”

The BH&J Index is publish 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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