Renting Gains Momentum As Analysts Seek Signs of a US Home Price Peak

Need for Apartments Grows Across the Country

Miami is one of 23 U.S. markets where renting beats buying. Photo: iStock
Miami is one of 23 U.S. markets where renting beats buying. Photo: iStock

A U.S. housing market that some analysts say could be closing in on a pricing peak may keep more renters from becoming homeowners, bolstering demand in the already-booming rental property and apartment sectors in the next three to five years.

The latest results from a second-quarter housing study show buying did not become any more favorable than it was in the past year. In fact, renting picked up more steam in many major markets across the country.

Renting beats owning in most of the 23 metropolitan areas surveyed by the Beracha, Hardin & Johnson Buy vs. Rent Index. Buying is the better option only in Cleveland, Chicago, New York City and Detroit, but even those four cities are pushing closer to rent territory as home prices keep rising, said Ken Johnson, a co-creator of the index and a professor at Florida Atlantic University in Boca Raton, Florida.

“It appears evident to us that we are approaching the peak of the most recent homeownership cycle,” Johnson said in an interview. “There will be an increase in need for quality rental properties.”

The index measures homeownership demand while analyzing whether it makes more sense to buy a home or rent one and invest the savings that would have been spent on owning. With the U.S. economy approaching the longest growth stretch in the nation’s history, analysts and the real estate industry are focusing on the effects on prices and demand.

Buyers build equity, but renters may generate wealth as fast or faster if they invest the money they would have spent on insurance, taxes, maintenance and other costs, according to Johnson and his co-creators. They track home prices, rental rates and investment streams in the markets.

The index shows renting and investing the savings still remains the faster way to wealth creation in these 19 markets: Atlanta; Boston; Cincinnati; Dallas; Denver; Honolulu, Hawaii; Houston; Kansas City; Los Angeles; Miami; Milwaukee, Wisconsin; Minneapolis; Philadelphia; Pittsburgh; Portland, Oregon; San Diego; San Francisco; Seattle and St. Louis.

Dallas , Denver and Houston remain the most overpriced markets for ownership, Johnson said.

“The opportunity to generate greater wealth by renting and reinvesting puts downward pressure on the demand for homeownership and prices should follow sooner rather than later,” index co-creator Eli Beracha said in a statement.

Still, in any area of the country, renters who don’t plan to invest are better off buying a home and staying in it several years because that amounts to a forced savings plan, Johnson said.

“Spending the money on beer and cookies is the biggest mistake you can make,” he said.