The discrepancy between homeownership costs and renting costs are increasing across the United States, according to the latest national index by professors at Florida Atlantic and Florida International universities. That gap is widening most in parts of the Southeast, Midwest, and Pacific Northwest.
The Beracha, Hardin & Johnson Buy vs. Rent Index "determines whether consumers will create wealth faster in buying a home and building equity or renting the same property and reinvesting the money they would have spent on ownership, such as taxes, insurance, and maintenance." The index takes into account the full U.S. housing market but narrows its focus by targeting 23 key metropolitan areas, "factoring in home prices, rents, mortgage rates, investment returns, property taxes, insurance and home maintenance costs."
The quarterly numbers show that Atlanta, Dallas, Denver, Houston, Kansas City, Miami, Pittsburgh, San Francisco, Seattle and Portland, Oregon, are all significantly above their long-term fundamental home price levels. That means renting clearly is the better option in those areas, according to Ken H. Johnson, Ph.D., a real estate economist within FAU's College of Business.
"These metro areas are the most at risk for home price declines, including any future negative impacts to housing values brought about by COVID-19," he said. "We're still waiting to see how the pandemic will affect the housing market."
Renters who would not invest the money they would have spent on ownership are still better off buying a home, according to Eli Beracha, Ph.D., an assistant professor in the Hollo School of Real Estate at FIU.
"Homeownership doesn't necessarily generate attractive rates of return, but it does force consumers to be more mindful of their expenses," he said. "Renters should be honest with themselves. If they aren't going to put their extra money into the stock market, then the safer option over the long run would be to own."