Demand for rental property is increasing across the United States as property prices rise, new studies show.
For the first time in 18 years, renting is likely to outperform owning on average across the country, when it comes to wealth creation, according to the latest the Beracha, Hardin & Johnson Buy vs. Rent Index.
The last time U.S. markets as a whole crossed from ownership territory into rent territory was in June 1999. In January 2010, U.S. housing markets crossed back into ownership territory and have remained there since. So says the latest national index produced by Florida Atlantic University and Florida International University faculty.
Ken Johnson, Ph.D., a real estate economist and one of the index’s creators in FAU’s College of Business, says, “It is clear that we are at a point where markets will begin to see downward pricing pressure, implying in some markets annual pricing increases will begin to slow.”
Currently, the biggest driver for moving the U.S. into rent territory is the fact that, while both are rising, the cost of ownership is outpacing the cost of renting a like-kind property, says Eli Beracha, Ph.D., co-creator of the index and director of the Hollo School of Real Estate at FIU.
Demand for rental property is increasing
“Cycles appear to be with us to stay and that the trade-off between renting and reinvesting versus owning and building wealth, as well as the cost of ownership relative to the cost of renting like-kind property, will be fundamental drivers of housing prices,” Beracha said.
William G. Hardin, Ph.D., professor in the Hollo School of Real Estate at FIU, believes U.S. housing markets are peaking. However, the perfect storm present in 2007-08, which preceded the last crash of real estate markets, is not around today.
“Interest rates are low and few junk mortgages are out there. Additionally, employment, income, and borrower credit ratings are all up. These are all good signs for a smoother transition this time around.”
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.
Cape Coral is not included in the index.
The main image is from Pixabay.com.