Real Estate

Is it better to rent or buy? Keep an eye on this key index

A key housing index tracked by South Florida professors shows that in the second quarter, the cost of renting a home in the U.S. remained cheaper than owning one.

The BH&J Buy vs. Rent index, published quarterly by professors Eli Beracha and William Hardin of Florida International University’s Hollo School of Real Estate and Ken Johnson of Florida Atlantic University, compares the cost of buying versus renting. Its analysis considers the rent-to-price ratio, mortgage rates, the expected rate of inflation, stock market returns, rent growth, and housing-price appreciation.

In its latest release, the index showed that in 13 of 23 U.S. real estate markets, the cost equation is squarely on the side of renters.

Renters in Miami-Dade can take heart knowing that they fall into that group. Miami-Dade’s Q2 score was 0.3 — far from the perfect score of 1, at which almost everyone should be renting and buyers should stay on the sidelines.

And if you already own? The index shows price appreciation here is showing signs of peaking —meaning that on average, the window to sell is closing, if it hasn’t closed already.

If there is any consolation for existing homeowners, Beracha said in an interview, it’s that any correction that may be coming in the next 12 to 24 months is likely to be a mild one. Beracha said this period will serve as a stable “bridge” period until the next cycle comes around.

“We are likely to see price appreciation, just at a slower rate, rather than a full-blown correction,” he said.

Homeowners in others markets should probably get out immediately, according to index measures. These include Houston, Dallas and Denver.

“There it’s becoming overheated,” he said. “They should be asking if they really need or want to own a home, given how high transaction costs can be.”

Two high-profile markets, Chicago and New York, are now “buyer’s” markets. In those cities, the cost of renting has, on average, outpaced the cost of owning a home. If a down payment is within reach, the average resident should consider buying, he said.

The index should not be used to make individual decisions, Beracha said. But it can help in the aggregate if someone is looking to make a transaction, he said.

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