Although home prices continue rising at a pace not seen since the mid-1970’s, it’s still a better bet to buy than rent in many of the nation’s biggest cities, according to new research from professors at Florida Atlantic University and Florida International University.
The research, published recently, shows that buying a home will help create wealth more quickly compared to renting in several of the nation’s biggest cities, including New York City, Boston, and Chicago.
The research looked at 23 of the nation’s biggest metropolitan areas to determine whether it would be better for the city’s residents to buy a home and build equity or rent a property and reinvest their remaining income.
According to the research, ownership costs declined in all 23 of the major cities analyzed in the fourth quarter, meaning that each market moved more towards the buy side of the buy vs. rent scale. The biggest driver of that decline in ownership costs is low mortgage rates, the report’s authors noted.
Now, that’s not to say that it makes financial sense to buy in every market.
According to the research, it is more advantageous to buy in Boston, Chicago, Cincinnati, Cleveland, Detroit, Honolulu, Milwaukee, New York City, and St. Louis. Interestingly, Boston, Milwaukee, and St. Louis all became “buyers’ markets” in the fourth quarter after being “renters’ markets” in the third quarter.
On the other side of the coin, Atlanta, Dallas, Denver, Houston, Kansas City, Los Angeles, Miami, Minneapolis, Philadelphia, Pittsburgh, Portland, San Diego, San Francisco, and Seattle are all considered to be “renters’ markets.”
However, the report notes that six of those markets – Los Angeles, Minneapolis, Philadelphia, Portland, San Diego, and San Francisco – are very close to shifting into buyers’ market territory.
“The real interesting takeaway from the latest run of the index is that it clearly illustrates the benefit of near-record-low mortgage rates and how they far outweigh the risk from inflating housing prices,” said Ken Johnson, Ph.D., one of the authors of the report and an economist in FAU’s College of Business. “Essentially, very low monthly payments stemming from low mortgage rates are going a long way in terms of expected wealth creation.”