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Print Posted on 06/07/2017 in Investing

Want to build more wealth? Renting a home beats buying, U.S index says

Want to build more wealth? Renting a home beats buying, U.S index says

Paul Owers

 Sun Sentinel    

If your goal is a bigger nest egg, you may want to give strong consideration to renting a home in South Florida rather than buying one.

Renting has been the slightly better option in recent years — but the latest figures from a quarterly housing index being released Wednesday indicate renters are starting to get even more bang for their bucks than buyers these days.

The Beracha, Hardin & Johnson Buy vs. Rent Index helps consumers decide whether it’s more advantageous to buy and build equity or rent the same property and invest the money they would have spent on owning.

The index is a creation of professors from Florida Atlantic and Florida International universities.

“More and more, we’re getting into rent territory,” said Ken Johnson, an economist and professor at FAU.

Johnson cites slower monthly rent growth combined with higher home prices and mortgage rates as reasons why renting increasingly makes more sense in Palm Beach, Broward and Miami-Dade counties.

Still, that doesn’t mean buying is a bad decision, he said. Far from it.

“There is still a desire to own,” Johnson said. “Just bargain aggressively. I’m not nervous about the housing market right now. There are too many jobs and too much good credit out there.”

While it’s primarily a seller’s market in South Florida, Johnson said buyers still shouldn’t pay top dollar for homes, even if that means losing a few properties to higher bidders.

Home ownership traditionally has been considered one of the best ways for working-class professionals to accumulate wealth. Renters who wouldn’t invest their savings are better off buying, analysts say.

“For disciplined individuals, renting can be just fine,” said Greg McBride, chief financial analyst with the Bankrate consumer website. “The problem is, not many people are disciplined about investing their spare cash.

“One of the reasons why home ownership is financially beneficial for so many people — it’s not because it generates attractive rates of return — it’s because it’s a form of forced savings,” McBride said.

Like the S&P CoreLogic Case-Shiller index, the BH&J index tracks home price fluctuations in major markets across the country. But BH&J also factors in rents, mortgage rates and investment data.

In about half of the 23 markets surveyed, including Chicago, New York City and Cleveland, buying is better than renting, but the decision is a virtual toss-up in eight other areas.

Renting is by far the better option in three markets: Houston, Dallas and Denver.

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