New FAU Real Estate Index Examines Whether It's Better To Buy Or Rent A Home

U.S. and Seven Cities in Strong Buy Territory

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Mar 11, 2015, 10:00 ET

BOCA RATON, Fla., March 11, 2015 /PRNewswire-USNewswire/ -- A new index launched by professors at Florida Atlantic University and Florida International University attempts to answer one of the toughest questions American consumers face: Is it better to rent or buy a home in today's housing market?

The Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index - named for the three professors who developed it - is designed to signal whether current market conditions favor buying or renting a home in terms of wealth creation over a fixed holding period in a particular market relative to historical market conditions and alternative investment opportunities.

The BH&J Index, which examines the United States and 23 key cities, somewhat mirrors the Standard & Poor's/Case-Shiller Home Price Indices, which track changes in residential real estate both nationally as well as in 20 metropolitan regions.

According to the latest BH&J Index, as of the end of the fourth quarter of 2014, the U.S. as a whole and seven cities (Atlanta, Boston, Chicago, Cincinnati, Cleveland, Detroit and New York City) are in strong buy territory, with scores that have historically favored wealth accumulation through home ownership.

Eight cities (Kansas City, Los Angeles, Milwaukee, Minneapolis, Philadelphia, San Diego, Seattle and St. Louis) are marginally in buy territory. Five cities (Honolulu, Miami, Pittsburgh, Portland and San Francisco) are at or near the indifference point between ownership and renting. Here the spread between monthly rent payments and ownership payments appears to be at a point that neither ownership nor renting is statistically favored.

Three cities (Dallas, Denver and Houston) are clearly in rent territory, with property pricing clearly out-pacing rents.

"While the nation as a whole and several markets are in a strong buy territory, the BH&J Index suggests that some cities are already renter-friendly," said Ken Johnson, Ph.D., one of the index's authors and an associate dean of graduate programs and professor in FAU's College of Business. "This is not surprising given the recent rise in housing purchase prices, climbing mortgage rates, relatively slower growth in market rents for comparable properties and the expected return on alternative investments."

The index conducts a "horse race" comparison between an individual that is buying a home and an individual that rents a similar quality home and reinvests all monies otherwise invested in homeownership. Johnson's collaborators on this ongoing independent research are Eli Beracha, Ph.D., assistant professor in the T&S Hollo School of Real Estate at FIU, and William G. Hardin III, Ph.D., director of the T&S Hollo School of Real Estate at FIU's College of Business.

The index's results are standardized between 1 and -1, with negative scores favoring ownership and positive scores favoring renting. The BH&J Index provides information on both the direction and health of varying housing markets, as well as collateral information for real estate professional, developers, lenders and housing policy makers.

The BH&J Index is published 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.

About Florida Atlantic University:

Florida Atlantic University, established in 1961, officially opened its doors in 1964 as the fifth public university in Florida. Today, the University, with an annual economic impact of $6.3 billion, serves more than 30,000 undergraduate and graduate students at sites throughout its six-county service region in southeast Florida. FAU's world-class teaching and research faculty serves students through 10 colleges: the Dorothy F. Schmidt College of Arts and Letters, the College of Business, the College for Design and Social Inquiry, the College of Education, the College of Engineering and Computer Science, the Graduate College, the Harriet L. Wilkes Honors College, the Charles E. Schmidt College of Medicine, the Christine E. Lynn College of Nursing and the Charles E. Schmidt College of Science. FAU is ranked as a High Research Activity institution by the Carnegie Foundation for the Advancement of Teaching. The University is placing special focus on the rapid development of three signature themes - marine and coastal issues, biotechnology and contemporary societal challenges - which provide opportunities for faculty and students to build upon FAU's existing strengths in research and scholarship. For more information, visit www.fau.edu.

CONTACT: Gisele Galoustian, 561-297-2676, [email protected]

SOURCE Florida Atlantic University