A parent can tell a child 100 times, Don’t touch this. It is hot and it will burn you. The child will shake their head yes, promise they won’t touch it, and move on for the time being. But that thought nags at them, stuck in the back of their mind, It can’t be that hot. Can it? So what do they do? They decide to learn for themselves, and the next time they see something hot they touch it. They burn themselves, of course, but that lesson learned the hard way sticks with them and they learn from it more than anything their parents could have ever said and they never touch hot things again. This is what seems to have happened with the housing market.
People warned about the downfalls of a overheated housing market constantly, but it took actually getting burned before the housing market actually realized the errors of its ways. And that is a lesson that seems to have stuck, as after months of overheating fears, many markets in the U.S. are beginning to show signs of leveling off before having to actually get burned again.
As the Huffington post reports, the results from the latest quarterly Beracha, Hardin and Johnson Buy vs Rent Index have shifted slightly in the direction of buy territory, meaning, on average, a family can create more wealth by owning and building equity than by renting and investing in a portfolio of stocks and bonds. There is about a 60 percent change that ownership will outperform renting and reinvesting in terms of wealth creation for the country as a whole.
Cities like Cincinnati, Chicago, and Cleveland all trend strongly in the direction of ownership with a greater than 70 percent chance of ownership outperforming renting and reinvesting.
Cities that were hit hardest during the real estate crash seem to be proceeding with the most caution to make sure they do not find themselves in a similarly unpleasant scenario.
Three cities that showed prices increasing at an alarming rate were Houston, Denver, and Dallas, with BH&J Index scores suggesting at minimum an 80 percent chance renting would outperform ownership. But even these cities are starting to show signs of leveling off. If home prices continued to increase in these cities, the markets would be pushed deeper into rent territory and the odds of a mini-bubble would increase significantly.
