Miami Is Renters Market For Real Estate: Analysis

MIAMI, FL — Miami is a more favorable renters market than it is a buyers market for real estate, finds a new analysis by faculty from Florida International University and Florida Atlantic University.

The analysis found that pressure on the demand for home ownership is declining in Miami and other major U.S. cities while competition for renting is growing, according to the findings.

"The Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index reveals that during the second quarter of this year 19 of the 23 markets tracked are well above their long-term buy vs. rent equilibrium, indicating that renting is still favorable," the professors found.

These include Atlanta, Boston, Cincinnati, Dallas, Denver, Honolulu, Houston, Kansas City, Los Angeles, Miami, Milwaukee, Minneapolis, Philadelphia, Pittsburgh, Portland, San Diego, San Francisco, Seattle and St. Louis.

"By contrast, the index indicates that buying is favorable for Chicago, Cleveland, Detroit and New York City," the professors said. "This is typically driven by the recent rate of rent growth relative to price appreciation in combination with declining mortgage rates and highly performing alternative investments such as stocks and bonds."

Dallas, Houston and Denver are also showing a high preference for renting relative to buying. In these cities housing price appreciation outpaced rent growth in a significant way in recent years which is a trend that cannot continue indefinitely, noted Eli Beracha, director of the Hollo School of Real Estate at FIU and co-creator of the index.

“This is quite worrisome,” said Beracha. “However, the overall trend towards lower BH&J scores is a good sign that the nation’s housing markets are pulling back from the edge of potential disaster.”

Published quarterly, the Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index is produced by Beracha and William Hardin, professors at FIU’s Hollo School of Real Estate, and Ken Johnson, professor at Florida Atlantic University.

The comparison between buying and renting considers many factors including, but not limited to, rent-to-price ratio, mortgage rates, expected rate of inflation, real past stock market long term returns, long term rent growth and housing price appreciation, costs associated with maintenance and property taxes, home ownership tax benefits, transaction costs and average homeowners’ duration between relocations.

"Markets showing extreme downward pressure on the demand for home ownership, favor renting and reinvesting and are more likely for housing prices to fall," according to the professors. "By contrast, those with extreme upward pressure and indicating a likely increase in prices soon to follow, favor buying in order to create greater wealth."

Beracha and Johnson agree that slowing property prices in combination with falling mortgage rates and a full valuation in the stock market have worked together to cause the recent decrease in BH&J scores around the country. They said that the peak of the nation’s current housing cycle is near and see the housing market going one of two ways.

“Housing markets will either soon experience a slow reversion to a long-term pricing trend or experience a rapid fall in prices below this same trend with a slow reversion,” Johnson said. “We hope for the former and fear the latter.”

Review the complete BH&J Index here. 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.