Study: Home prices are outstripping rental prices in the South

Sunbelt states, including Florida, Georgia, North Carolina, Tennessee and Texas, are seeing prices for buying homes climb so high that renting may be a better option, as a correction in the rental housing market is nearly sure to come. That’s according to a new joint study published this month by Florida Atlantic University (FAU) and Florida International University (FIU).

The so-called “price-to-rent ratio” measures how far off prices to own a home differ from the price to rent a residential unit. When ranking cities nationwide with the biggest price-to-rent ratio change, Florida had four cities in the top 20, while North Carolina had three, Texas two and Tennessee and Georgia one each.

The report compares the current rental rates to historic averages. If the percentage change is in the positive column, rents at the time are preferable to owning.

Florida cities in the top 20 included Orlando, ranked 6th with 12.86% change in rental prices; Lakeland, ranked 10th at 12.17%; Jacksonville, ranked 12th at 11.6%; and Tampa at No. 19, with 10%. North Carolina cities in the top 10 include Charlotte at No. 3 and 14.79%; Durham at No. 4 and 13.89%; and Raleigh at No. 8 and 12.53%. Texas cities in the top 10 are McAllen at 22.69% in the top spot and Dallas at No. 9 with 12.49%.

The study calculates the ratio between local home prices to annualized rents in 100 of the most populated metropolitan areas in the country.

Only one city in the top 10 of the ranking was not from a Southern state. San Jose, California, was ranked second.

While many of the ranked areas indicate more favorable conditions for renting, especially in Southern states, researchers say the disparity may soon bring a price correction in those markets.

“In the majority of the metros located in the Sunbelt states, housing prices have gotten more out of line with rents than in other parts of the country,” said Ken H. Johnson, real estate economist with FAU’s College of Business. “The price of homeownership is increasing faster than the cost of renting, causing home prices to get more out of line than rental prices, putting these areas most at risk for a pricing correction.”

The rental market in Southern states is currently being influenced by the migration of many northerners who are still moving to the Sunbelt, according to Eli Beracha, a researcher at the FIU Hollo School of Real Estate.

“Higher price-to-rent premiums for these markets are mostly likely a reflection of families from the Midwest and Northeast moving into the Sunbelt and paying cash netted from the sale of their former properties. Regardless of cause at this point, home pricing has simply outstripped rents, placing downward pressure on prices in these metros,” Beracha said.

Researchers advise that those looking to buy a home in Southern states would likely be better served to rent a residential unit for the time being until the ownership and rental markets even out.

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