The latest 2015 National Market Index by the Florida Atlantic University and the Florida International University faculty has revealed that some cities' housing market is nearing the pricing bubble territory.
Dallas, Denver and Houston are the top cities that are on the verge of entering the pricing bubble territory. These cities are well above previous index scores that strongly favor renting as opposed to buying, in terms of wealth creation.
"It is no longer a matter of if but when, and to what extent, we will see a downward pricing event in these three cities," Johnson said. "Prices are rising too fast in these cities and there are no underlying fundamental changes in their economies to support current pricing, especially in the face of a booming stock market."
The latest Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index was conducted by Ken Johnson, Ph.D., associate dean of graduate programs and professor in FAU's College of Business, by Eli Beracha, Ph.D., assistant professor in the T&S Hollo School of Real Estate at FIU, and by William G. Hardin III, Ph.D., director of the T&S Hollo School of Real Estate at FIU's College of Business.
According to their press release in PR Newswire, the BH&J Index measures the correlation between purchasing property and building wealth through a build-up in equity, and renting a comparable property and investing in a portfolio of stocks and bonds. The latest BH&J Index based on the numbers of the third quarter of 2015, revealed that home prices across the nation rose 4.9 percent in a 12 month-period ending in September. Due to this, researchers behind BH&J believe that the U.S. housing market is starting to shift towards the renting territory.
"The U.S. housing market across the board is moving toward rent territory," said Johnson.
Meanwhile, cities such as Miami, Honolulu, Pittsburgh, Portland, San Francisco and Seattle, do not show any danger point for triggering dramatic pricing declines despite the rise of home prices.
"A continuation of rapid and dramatic price increases in these real estate market places will almost certainly lead to pricing bubbles and resulting local real estate crashes," Beracha said. "On the other hand, a slowdown in pricing in these areas should allow these cities to pull back from the edge."
