Risk of falling home prices could make it better to rent than buy in Austin, new study says
https://www.bizjournals.com/austin/n...nt-vs-buy.html
Dallas-Fort Worth and Austin both rank in the 10 U.S. housing markets most exposed to price corrections, meaning consumers in Texas’ two fastest-growing metro areas should strongly consider renting rather than buying, according to a new national report.
Austin ranks second-highest in favor of renting and DFW ranks seventh in the study measuring the relative cost of owning to renting in 100 metropolitan areas nationwide.
Spokane, Wash., leads the U.S. with a price-to-rent ratio of 32.1% above the long-term average, according to the BH&J National Price-to-Rent Ratios Monthly Report from researchers at Florida Atlantic University and Florida International University.
Austin came in at No. 2 with a ratio of 29.6% and DFW’s is 23.3%. Houston ranked No. 12 at 22% and San Antonio ranked No. 24 at 18.1%.
People considering buying a house should think twice in markets with high ratios — especially those metros that rank in the top 10, said Ken H. Johnson, an economist in FAU’s College of Business and co-author of the report.
“In markets with these high ratios, it is reasonable to expect price corrections because renting is much more favorable there,” Johnson said. “Renting will slow down demand for homeownership, which will, in turn, affect prices.”
Johnson also co-authors separate monthly indexes revealing the most overvalued U.S. markets for home prices and rents.
The Florida researchers calculate the price-to-rent ratio as the average home price for an area divided by the area’s annual rents for the average property. Data is provided from the Zillow Home Value Index and the Zillow Observed Rental Index, including single-family homes, townhomes, condominiums and apartments.
Also factoring into the buy-versus-rent equation is the supply of apartments in a market. Both Austin and DFW have an abundance of apartments under construction and in the pipeline.
The Austin metro is projected to deliver 18,288 apartments by the end of 2022, according to an August RentCafe repot. That would rank No. 4 in the nation.
Contrary to the Florida researchers’ conclusions, a report released Sept. 15 by property analytics firm Attom Data Solutions ranked major Texas counties as less vulnerable than most in the U.S. to a declining housing market.
In North Texas, Denton County ranked 377th out of the 575 counties studied by Attom for vulnerability during a downturn, followed by Tarrant at 392nd, Dallas at 427th and Collin at 469th. Austin, Houston and San Antonio had similarly low-risk ratings.
The property data provider calculated risk levels by measuring unemployment rates, affordability, foreclosures and the number of homes on which owners owe more on the mortgage than their property is worth.
Attom found the highest concentrations of at-risk markets in the New York City and Chicago areas, with Southern and Midwestern states less exposed to a housing price collapse if a recession occurs.
Wide disparities in risks throughout the country come at a time when the U.S. housing market faces much higher interest rates and other factors that could slow or end an 11-year rise in home prices, said Rick Sharga, executive vice president of market intelligence at Attom.
Sales of both existing and new homes have declined as mortgage rates have almost doubled to 6% over the past year, and inflation remains near a 40-year high.
“The Federal Reserve has promised to be as aggressive as it needs to be in order to get inflation under control, even if its actions lead to a recession,” Sharga said in a statement accompanying the report. “Given how little progress has been made reducing inflation so far, the Fed’s actions seem more and more likely to drive the economy into a recession, and some housing markets are going to be more vulnerable than others if that happens.”
Another study out last week found that home affordability continues to drop sharply in Dallas-Fort Worth and Austin.
The study found Austin ranked 22nd least affordable, Dallas ranked 33rd, Irving ranked 41st, Fort Worth ranked 48th and Arlington ranked 49th among the nation's largest 100 cities, according to the RealtyHop September Affordability Index.
In Austin, 48.4% of homeowners’ median yearly household income is going toward homeownership costs, the study found. In Dallas, 41.9% of yearly household income is going toward homeownership costs.
Irving has 39.3% of yearly household income going toward homeownership, Fort Worth has 37.5%, and Arlington has 37% going toward homeownership costs.
The affordability index in Dallas was based on a median household income of $60,117 and a median home price of $360,000.
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