BOCA RATON, Fla. – Dec. 5, 2018 – U.S. metropolitan residential real estate markets are peaking and some cities are in another pricing bubble, according to the latest national index produced by Florida Atlantic University (FAU) and Florida International University (FIU) faculty.
The Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index estimates wealth creation by way of homeownership and equity appreciation versus renting and reinvesting in more traditional financial assets. Thus, by default, the index also measures the pressure on the demand for homeownership.
Scores approaching one indicate strong downward pressure on the demand for ownership, and two metropolitan areas – Dallas (.92) and Denver (.77) – are rapidly approaching an index score of one.
“Both Dallas and Denver are significantly overheated,” says Ken Johnson, Ph.D., one of the index’s creators and associate dean and professor in FAU’s College of Business. “Residential real estate prices in Dallas are significantly above their long-term pricing trend, and I anticipate pricing corrections in the near future.”
Strong economies in Dallas and Denver have buoyed property prices beyond their fundamental levels for a sustained period.
“Prices are still appreciating in both metros but at a decreasing rate, suggesting that the current upward pattern in property appreciation is nearing an end,” says Eli Beracha, Ph.D., co-creator of the index and director of the Hollo School of Real Estate at FIU.
Of the 23 cities in the BH&J Index, 20 trended toward rent territory last quarter, implying these markets became slightly more renter friendly in terms of wealth creation. Interestingly, three metro areas – Honolulu, Miami and Seattle – which have been some of the hottest real estate markets in the country, have trended marginally back toward ownership territory.
“This does not mean that these markets are exhibiting clear buy signals, but rather they appear to be pulling back from the brink as buyers begin to negotiate more aggressively in these areas,” says William G. Hardin, Ph.D., director of FIU’s Jerome Bain Real Estate Institute and associate dean of the Chapman Graduate School of Business.
© 2018 Florida Realtors®
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