Study: Texas, Washington markets are best for renters

All 100 of the largest US housing markets prefer renting to buying, but major cities in Texas, Washington, Tennessee and North Carolina are the most renter-friendly in the country, according to the latest study by researchers from Florida Atlantic University and Florida International University.

McAllen, Texas ranks #1 in the Beracha, Hardin and Johnson Price-to-Rent Report at a premium of 23.33 percent — that’s an amount above the average price-to-rent ratio for the area .

McAllen consumers paid an average of $10.58 to buy a home for every $1 in annual rent, but at the end of September they were actually paying $13.05 — and the difference between those two numbers is the premium.

The monthly report measures the ratio of a market’s average property price to that market’s average annual rent, providing a relative financial comparison between ownership and renting.

A higher price-to-rent ratio favors renting over owning as it implies that owning is relatively more expensive.

Spokane, Washington (23.32 percent premium); Nashville, Tennessee (21.92 percent); Durham, North Carolina (21.72 percent); and Austin, Texas (20.66 percent) round out the top five US premiums.

The full ranking can be found here.

The Buy vs. Rent report combines insights from the top 100 US housing markets and the Waller, Weeks and Johnson Rental Index to create price-to-rent estimates. The raw data for all reports comes from Zillow’s Zillow Home Value Index and Zillow Observed Rental Index.

“All measured markets favor renting over buying, and this reflects the fact that house prices are generally rising faster than rents,” said Ken H. Johnson, Ph.D., an economist at FAU’s College of Business.

While the report helps compare renting versus buying, it doesn’t address housing affordability, according to Eli Beracha, Ph.D., of the FIU’s Hollo School of Real Estate.

“If you look at the data as a whole and compare it to the pace of construction, it’s clear that we’re not building condos fast enough to keep up with demand for ownership over rental,” Beracha said.

William G. Hardin III, Ph.D., dean of the FIU’s College of Business, said the results showing renting is better than buying come with a caveat.

“We emphasize that families who rent need to save money that they would otherwise have invested in home ownership, such as down payments, child support, taxes and insurance,” Hardin said.

All three researchers agree that there are three options that all families face: renting and investing money that would have been owned; owning and building equity; and rent, but don’t save. The first two lead to similar results in terms of wealth accumulation. The third typically destroys wealth.

“If you rent and then spend your savings on beer and cookies, you might as well buy a house despite the high prices right now, because ownership is at least a forced savings plan,” Johnson said.