Cheaper to Rent than Buy? One Huge CaveatBy Kimberly MillerIn a handful of U.S. metros, studies say it’s cheaper right now to rent – but those studies assume renters must take any
Cheaper to Rent than Buy? One Huge Caveat
Dated: March 14 2022
Cheaper to Rent than Buy? One Huge Caveat
By Kimberly Miller
In a handful of U.S. metros, studies say it’s cheaper right now to rent – but those studies assume renters must take any savings and invest it rather than spend it.
WEST PALM BEACH, Fla. – With no end in sight to South Florida’s scorching housing market, real estate economists said this week that it makes more sense in many cases to rent a home until the fracas subsides.
The caveat to the idea that leasing is preferable to purchasing is that money saved by not paying for home maintenance, association fees, insurance and taxes should be invested, and not spent on “beer and cookies,” said Florida Atlantic University economist Ken Johnson.
On average, renting and reinvesting is winning in most parts of the country, but not by a tremendous amount,” said Johnson, who issues a quarterly report on renting vs. buying in conjunction with Florida International University. “The cost of owning is going up faster than renting, but that doesn’t mean that either is inexpensive at this point.”
Owning a home and building equity is how Americans have created wealth for decades, but the last time it made more financial sense to buy a home in South Florida rather than rent and invest was at the tail end of 2014, Johnson said.
Of the 23 major metropolitan areas in his study, 17 favor renting a property and reinvesting the money, including the Miami region, which encompasses Palm Beach, Broward and Miami-Dade counties. Areas where buying is a better option are Boston, Chicago, Cleveland, New York, San Francisco and Honolulu.
In each of the areas studied, the volatility of the housing market is compared to the risk in an investment portfolio of stocks and bonds.
“What it all boils down to is the portfolios have been outperforming housing,” said Johnson, who attributes the rocketing home prices on a shortage of inventory – something he doesn’t see increasing any time soon. “There is no way we are going to solve this in the next few months. It will take a long time, several years, to build our way out of this.”
The median sales price for a single-family home in Palm Beach County in January was $526,500, with the average price hitting $826,002. Condominiums and townhomes sold at a median price of $265,000 in January, and an average price of $425,484, according to the Florida Realtors.
Rental research firm Zumper found that a two-bedroom apartment in West Palm Beach as of Wednesday was going for an average of $2,200 a month. That’s a 42% increase over the same time in 2021. “No renter receives notice of a rent increase as good news, but owners do,” said Florida Management Consulting Group founder and owner David Harper, whose company manages about 200 homes in Palm Beach and Broward counties. “Owners say, ‘Thank God I’m breaking even again.’”
Harper said landlords are experiencing higher insurance rates and increasing taxes as property values rise. He said he tries to be fair with tenants renewing their leases, rarely charging the full amount he could get from a new renter. It’s also becoming more difficult to find what he considers “qualified” renters – people whose income is three times the rent.
Still, when a tenant paying $2,600 a month recently moved out of a home, Harper was able to rent it the next day to a qualified tenant for $3,500.
“We caution owners not to go overboard,” Harper said. “Being vicious and raising the rent because you smell blood in the water is not good.”
A January report released by nationwide property data provider ATTOM supported renting over buying in South Florida. It found that it would take 43.6% of the average worker’s salary in Palm Beach County to pay for a three-bedroom rental compared to 53% to pay for a three-bedroom home.
In Martin County, the cost to rent a three-bedroom was also 43.6% of the average salary, but to buy a home was 57%.
St. Lucie County was the closest area to Palm Beach County on the east coast where it was cheaper to buy. According to ATTOM, the rental cost affordability was 46% of the average salary but buying a home was 38.5%.
“I wish I had good news. I wish I could say things are improving in South Florida, but I can’t,” said Ned Murray, associate director of the Metropolitan Center at Florida International University. Murray noted that hidden costs such as repairs and upgrades need to be considered when buying a home in today’s “as is” market where sellers wield all the power.
Bringing a home to code that was built prior to the 2002 Florida Building Code could cost between $50,000 and $60,000 for items such as hurricane-strapped roof tresses and impact windows and doors, Murray said.
Murray also recommended trying to negotiate with landlords trying to hike rents, but that can be difficult if the landlord is a billion-dollar corporation with nationwide rentals.
“The best thing to do if you are already in your home, whether renting or owning, is to hold your ground because you don’t want to be in the market if you don’t have to be,” Murray said. “Stay put if you can.”
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