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Favorable Conditions For SFR Investment in Many Cities

A recent report released by the Florida Atlantic University College of Business indicates that it could be a good time to invest in rental properties as mortgage rates and home prices increase in major cities across the country.

According to the Beracha, Hardin & Johnson Buy vs. Rent Index (BH&J),  18 out of 20 metro areas showed an appreciation in housing prices as Q1 2017 came to a close. That number has stayed constant, restricting inventory as demand remains the same, resulting in markets that swing toward renting rather than buying.

The BH&J uses data from S&P/Case-Shiller’s 20-City price index and measures it on a ratio of wealth accumulated through renting versus wealth accumulated through home ownership before scaling it on a 1 to -1 scale. Zero is an ambivalent market. Scores of one favor renting, while scores of -1 favor buying.

In eight cities, conditions were favorable for rental investment to flourish. Those cities include San Francisco, Seattle, Pittsburgh, Miami, Denver, Houston, Dallas, and Portland, Oregon.

Markets in Honolulu, Hawaii; Kansas City, Kansas/Missouri; Los Angeles, California; and San Diego, California favor neither renting nor buying, but as Q2 draws nearer, these four cities are liable to favor either market.

The remaining eight cities—Boston, Atlanta, Chicago, Cincinnati, Cleveland, Detroit, New York, Philadelphia— demonstrate conditions that favor a buyers’ market.

The cause of this shift in a handful of regional markets? According to Ken Johnson, one of the index’s creators, “The major drivers for this quarter’s scores appear to be slowing rents relative to the costs of ownership and climbing mortgage rates … Thus, on the margin, more potential owners should favor renting and reinvesting in a portfolio of stocks and bonds as opposed to ownership. This shift should slightly lower the demand for ownership and contribute to the slowdown in housing prices around the country.”

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