BOCA RATON, Fla. (CBS12) — The price of housing has skyrocketed across South Florida, but apparently not as much as some other places.
Economists at Florida Atlantic University and Florida International University are suggesting most Americans looking for a place to live should rent, rather than buy a place and risk doing so at the top of the market.
They say that despite rapidly rising rents, most prospective buyers could build long-term wealth as fast or faster by renting a similar single-family property and investing the money that otherwise would’ve been spent on owning.
Of course, in real estate, it’s location, location, location. The researchers looked at 23 major metropolitan areas.
They determined 17 of those 23 places favor renting a property and reinvesting, rather than buying. Those locations are Miami, Atlanta, Cincinnati, Dallas, Denver, Detroit, Houston, Kansas City, Los Angeles, Milwaukee, Minneapolis, Philadelphia, Pittsburgh, San Diego, Seattle, St. Louis and Portland, Oregon.
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Of those, five places “strongly favor renting,” rather than buying, since prices there are quickly skyrocketing, putting buyers “in danger of serious price declines” once those markets level off. Those locations are Dallas, Denver, Houston, Kansas City and Seattle.
“Buying near the peak of a real estate or stock market is never a good investment strategy,” Dr. Ken H. Johnson, a real estate economist and associate dean at FAU’s College of Business. “Even though rents are high right now and rising, renting becomes a hedge against locking in a home price that is too far above a market’s long-term pricing trend.”
The remaining six cities are places they determined buying and building equity beats renting. They are Boston, Chicago, Cleveland, New York, San Francisco and Honolulu, Hawaii.
But renters shouldn’t feel bad, like they’re missing out.
It might be wise to simply move to the sidelines and let this storm pass.
“If you have a good lease or own a home, it might be wise to simply move to the sidelines and let this storm pass,” Johnson explained.
Wednesday, the real estate brokerage Redfin issued a report that found the number of homes on the market in the U.S. is down by half from the start of the pandemic, two years ago, to a record low of roughly 456,000. Also, the median sale price is $369,125, the highest on record and up 33.6 percent from two years ago. Plus, homebuyers are now twice as likely to pay above the asking price. But, the typical home sells in 25 days, down from 53 days, and a record 44.7 percent of homes sell within one week, compared with 30.8 percent two years ago.
The university researchers acknowledge homeownership was once considered far better than renting and reinvesting for building wealth – at least until the historic housing crash from 2006 to 2011. That changed many Americans’ perceptions.
“You don’t need to be a homeowner to build a retirement nest egg,” according to Dr. Eli Beracha, director of FIU’s Hollo School of Real Estate. However, there’s a catch.
The researchers say renting typically costs less per month than owning, since renters don’t directly pay home maintenance costs, homeowner association dues and other fees.
“But if you don’t think you’ll invest your rental savings, it’s better off to buy a home, especially if you plan to stay there for several years,” Beracha explained. “Even if home prices fall, chances are values will rebound in the long run and allow you to do well in the savings game.”
Most homeowners around South Florida may be saving more than homeowners around the country because rent prices have gone up more here.
Brian Carberry, the senior managing editor of Rent.com, broke down rent numbers from our area that his website follows for CBS12 News.
Carberry said nationally, the average rent for one-bedroom apartments went up 22 percent from this time last year, and the rent for two-bedroom apartments went up 20 percent.
That is significantly higher than a normal increase...
“That is significantly higher than a normal increase that we would expect to see in any normal year when we're not looking at a pandemic,” according to Carberry. “You would expect to see rents up anywhere from 3 to 5 percent on a national level. Certain markets, certain states, certain neighborhoods are going to be different. There's a lot of micro-economic factors that come into play there.”
Carberry said rental prices in Boca Raton went up more significantly. The average rent for one-bedroom apartments went up 35 percent to $2600, and the rent for two-bedroom apartments went up 23 percent to $3100.
Rental prices in West Palm Beach, according to Carberry, had even more significant increases than Boca and they’re more expensive. The average rent for one-bedroom apartments went up 55 percent to $2900, and the rent for two-bedroom apartments went up 26 percent to $3300.
It is an expensive place in the country to live
“It is an expensive place in the country to live,” Carberry admits. “Prices are increasing kind of on par with what we're seeing nationally, but in certain areas they are going up much, much more. So, it is something that renters do need to be aware of and prepare for.”
The average rent for a one-bedroom apartment in Port St. Lucie went up 35 percent to $1800, and a two-bedroom in Wellington went up 15 percent to $3000.
That doesn’t look as bad but it’s still higher than national and state averages.
“Supply and demand really is the main driving factor in some of these price increases,” Carberry explained. “There are going to be other factors. Every market is going to have their unique things going but it really does come down to supply and demand. There are a lot more people on the market right now looking for an apartment and a lot fewer available units. Occupancy rates are at an all-time high really across the country right now and a lot of people have been staying put.
60 percent of renters are at least considering a move over the next six months
“We did do a survey, though, back in November that found 60 percent of renters are at least considering a move over the next six months which would really put them into spring, so some of this could change.” As for the near-future, Carberry said, “We could see a lot more availability come on the market but some of these people who are moving, are they going to be looking to snatch up apartments as well? So, while it will add more units it'll also add more potential renters so competition will remain high.”
Carberry said renters should expect to pay more than they did last year but not to expect another 20 percent national increase, or 55 percent increase for a one-bedroom apartment in West Palm Beach. Instead, the increase will be a lot more manageable.
The FAU-FIU researchers say renters can move more easily for other jobs, but they also have less control than owners over their housing costs on a year-to-year basis, especially in today’s market that strongly favors landlords.
Carberry offered up some tips.
“If you are in your lease currently and you’re looking to stay and you’re concerned that you are going to have a rent increase when that lease renew comes — and it's very likely that you will — reach out to your property manager a couple of months ahead of time and just inquire to see what they're thinking that might look like. You can show them how good of a tenant you've been, how you've always paid your rent on time, how you never had an issue with neighbors and how neighbors haven’t had issues with you, how you love living there. If you have a pet, there's never been any issues with your pet. You've kept your apartment clean. Whatever it might be. If you can prove to your landlord that you were that ideal tenant, they're going to be more willing to work with you because at the end of the day — while they want to collect as much as they can for the rent — they also want to have a tenant that is going to be perfect for them. They don't want to deal with problems. It makes their life easier so if you can show your landlord how good you've been in the time you've lived there, they're more likely to be willing to work with you.”
But Carberry said the news isn’t as good for people looking to move, or are new to the area, since landlords have such competition for units. These days, don’t expect specials such as free months or reduced rents for signing, like in the beginning of the pandemic.
Carberry suggests, “If you're set on an area and know you're going to be there for a while, see if you can sign a 24-mont lease versus that standard 12-month lease. Landlords will be more willing to work with you and more willing to negotiate if you lock in for that longer term.” Of course, if prices do drop, you’ll be locked into the rate you negotiated, so be comfortable paying that amount.
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Finally, “Look at the amenities that are being offered in certain communities. If parking is included and you're in an area where parking is at a premium and you don't need a car or you don't have a car or you like walking places, your office is right around the corner, you work from home, whatever it might be, see if you'd be willing to give that parking spot back and that may incentivize that landlord to rent to you, especially because then they can use that to try to get someone else to rent and they have an additional parking spot to use.”
Carberry said that can be done with all sorts of amenities but really kind of look what your wants and needs are and see what’s being offered by different communities and see where you can negotiate and have some wiggle room.