Rising home prices boost rental affordability

The affordability of renting relative to home purchase is increasing in many US markets

Rising home prices boost rental affordability
The affordability of renting relative to home purchase is increasing in many US markets.

Increases in rents appear to be slowing while home prices and mortgage rates are rising according to the latest Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index from Florida Atlantic University and Florida International University faculty.

“Thus, on the margin, more potential owners should favor renting and reinvesting in a portfolio of stocks and bonds as opposed to ownership,” said Ken Johnson, Ph.D., a real estate economist and one of the index’s creators in FAU’s College of Business. “This shift should slightly lower the demand for ownership and contribute to the slowdown in housing prices around the country.”

The index shows that 11 of 23 cities in the index remain in buy territory. In nine further cities, there is little difference between buying and renting in terms of wealth accumulation.

Metros including Chicago, Cincinnati and Cleveland favor buying over renting and price increases in these markets are not expected to overheat, the index’s co-creator Eli Beracha believes.

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