Study: Right now it’s better to buy a home than rent

 

BOCA RATON, Fla. – The latest national housing market index produced by Florida Atlantic University (FAU) and Florida International University (FIU) faculty finds that it's becoming more favorable for renters than buyers in terms of wealth accumulation.

The Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index attempts to answer one of the toughest questions American consumers face: Is it better to rent or buy a home in today's housing market?

The quarterly index is designed to signal whether current market conditions favor buying or renting a home in terms of wealth creation. To do so, it considers a fixed holding period in a particular market relative to historical market conditions and alternative investment opportunities. It examines the entire U.S. housing market and isolates the markets of 23 key cities.

According to the latest BH&J Index, as of the end of the first quarter of 2015, the housing market in the U.S. and all cities in the index are trending either closer to renting being the superior option or strictly favoring renting over purchasing a home.

Three cities (Dallas, Denver and Houston) are clearly in rent territory, with property pricing clearly out-pacing rents, meaning buyers should proceed with strong caution.

In contrast to the latest Standard & Poor's/Case-Shiller Home Price Indices, which recently reported a five percent year-over-year property appreciation rate, the BH&J Index suggests that potential purchasers in many cities around the U.S. should begin to bargain more aggressively.

"Potential buyers should be cognizant that 'the deals' are out of the marketplace, and that it is essentially a tossup between rent and ownership as to which way will, on average, index author and associate dean in FAU's College of Business. "Miami, in particular, deserves attention as it has been trending toward rent territory for several reporting periods. In Miami, potential buyers should seek to bargain more aggressively."

Seven cities (Miami, Honolulu, Los Angeles, Pittsburgh, Portland, San Francisco and Seattle) are at or near the indifference point between ownership and renting. Here the spread between monthly rent payments and ownership payments appears to be at a point where neither ownership nor renting is statistically favored.

Four cities (Chicago, Cincinnati, Cleveland and Detroit) remain in strong buy territory with scores that have historically favored wealth accumulation through homeownership.

The index conducts a "horse race" comparison between an individual that is buying a home and an individual that rents a similar quality home and reinvests all monies otherwise invested in homeownership. Johnson's collaborators in this ongoing independent research are Eli Beracha, Ph.D., assistant professor in the T&S Hollo School of Real Estate at FIU, and William G. Hardin III, Ph.D., director of the T&S Hollo School of Real Estate at FIU's College of Business.

The index's results are standardized between 1 and -1, with negative scores favoring ownership and positive scores favoring renting. The BH&J Index provides information on both the direction and health of varying housing markets, as well as collateral information for real estate professional, developers, lenders and housing policy makers.

The BH&J Index is published quarterly. The raw data is available online.
© 2015 Florida Realtors® Original post here: http://www.floridarealtors.org/NewsAndEvents/article.cfm?p=2&id=328166

Questioning your decision to buy?
Here are 7 ways owning a home is a smart money move.

The financial benefits of homeownership are evident year-round. Let’s examine how homeownership makes “cents” — from tax benefits to financial stability.

1. Homeownership builds wealth over time
We were taught growing up that owning ahome is a financially savvy move. Our parents and grandparents thought so as well. But this past decade of real estate turbulence has shaken everyone’s confidence in homeownership. That is why it’s so important that we discuss this again now that we’re in a “new” market. Homeownership can be a very savvy financial move — but only if people buy homes they can actually afford.

2. You build equity every month
Your equity in your home is the amount of money you can sell it for minus what you still owe. Every month you make a mortgage payment, and every month a portion of what you pay reduces the amount you owe. That reduction of your mortgage every month increases your equity. That is especially true now with the elimination of risky mortgages like negative amortized and interest-only loans — thanks to the new “Qualified Mortgage” rules. The way mortgages work is that the principal portion of your payment increases slightly every month year after year. It’s lowest on your first payment and highest on your last payment. Thus, as the months and years go by, your equity grows!

3. You reap mortgage tax deduction benefits
Mortgage deduction: The tax code allows homeowners to deduct the mortgage interest from their tax obligations. This can be a huge deduction, since interest payments are often the largest component of your mortgage payment in the early years of owning a home.

Some closing cost deductions: The first year you buy your home, you are able to claim the points (also called origination fees) on your loan, no matter whether they are paid by you or the seller. Since origination fees of 1% or more are common, the savings are considerable.

Property tax is deductible: Real estate property taxes paid on your primary residence and a vacation home are fully deductible for income tax purposes.

4. Tax deductions on home equity lines
In addition to your mortgage interest, you can deduct interest paid on a home equity loan (or line of credit). You can transfer your credit card debts to your home equity loan, pay a lower interest rate, and get a deduction on the interest as well.

5. Capital gains exclusion
If you buy a home to live in as your primary residence for more than two years, then you qualify for this deduction. When you sell, you can keep profits up to $250,000 if you are single, or $500,000 if you are married, and not owe any capital gains taxes. It may sound ridiculous to say that your house actually appreciated after these past several years of falling house prices. However, if you purchased your home prior to 2003, chances are, it has appreciated in value and this tax benefit will come in very handy.

6. A mortgage is like a forced savings plan
Paying your mortgage every month and reducing the principal is like a forced savings plan. Each month you are building up more valuable equity in your home. In a sense, you are being forced to save — and that’s a good thing.

7. Long term, buying is cheaper than renting
In the first few years, it may be cheaper to rent. But as the interest portion of your mortgage payment decreases, the interest will eventually be lower than the rent you would have been paying. But more importantly, you’re not throwing away all that money on rent. You have to live someplace, so instead of paying off your landlord’s home or building, pay off your own!

- See more at: http://www.trulia.com/blog/7-financial-benefits-of-home-ownership/?ecampaign=cnews&eurl=www.trulia.com%2Fblog%2F7-financial-benefits-of-home-ownership%2F#sthash.dWNA033g.dpuf

Repost courtesy of Trulia and author Michael Corbett

Original article here: http://www.trulia.com/blog/7-financial-benefits-of-home-ownership/?ecampaign=cnews&eurl=www.trulia.com%2Fblog%2F7-financial-benefits-of-home-ownership%2F

Freshen Up on the 7 Financial Benefits of Homeownership

By Michael Corbett | April 23, 2015

Homeownership can be a very savvy financial move — but only if people buy homes they can actually afford.

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- See more at: http://www.trulia.com/blog/7-financial-benefits-of-home-ownership/?ecampaign=cnews&eurl=www.trulia.com%2Fblog%2F7-financial-benefits-of-home-ownership%2F#sthash.dWNA033g.dpuf