Is buying a home more cost effective than renting?
Home ownership has long been the most straightforward path to wealth creation, however researchers from Florida Atlantic University and Florida International University are suggesting that in many markets — especially the Texas triangle — investing the money saved by renting could be the better option. Metros in Texas, Washington, Tennessee and North Carolina, in that order, are the most renter-friendly in the nation, the Dallas Business Journal report.
The four major metro areas in Texas all ranked strongly in favor of renting rather than buying, according to this monthly report which measures each metro’s ‘premium’ — the ratio of a market’s average home price to that market’s average annual rent.
McAllen, a city near the Mexico border, earned the No. 1 spot in September with a premium of 23 percent. In other words, buyers in McAllen paid about $23 for every dollar paid by a renter in annualized rent. Austin ranked fifth nationally with a premium of 21 percent; Houston ranked ninth with a premium of 19 percent, and Dallas-Fort Worth ranked 11th with a premium of 18 percent. San Antonio also made the list, ranking 19th in the nation with a premium of 15 percent. For comparison, Los Angeles, Miami and New York all ranked toward the bottom of the list with premiums of 7.9, 7.8 and 6.3 percent, respectively.
The results favoring renting over buying reflect the fact that home prices generally are rising faster than rents, said Ken H. Johnson, an economist in Florida Atlantic University’s College of Business.
“If you’re going to rent and then spend your savings on beer and cookies, you might as well just buy a home despite the current high prices,” Johnson said. “Ownership is at least a forced savings plan.”
But putting money in the bank is a must for renters.
“We stress the need for families that rent to save money that they would have otherwise invested in homeownership, such as a down payment, maintenance, taxes and insurance,” says William G. Hardin III, dean of Florida International’s College of Business.
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— Maddy Sperling