Rising prices are likely to curtail home buying in major markets nationwide over the next three to five years, a sign of strength for rental property and apartment development.

A U.S. housing index [recently] released indicates that owning will be less appealing than renting in 19 of 23 metropolitan areas surveyed. Dallas, Denver and Houston stand out as the three markets where ownership will be the least desirable, according to the index created by three professors at Florida International and Florida Atlantic universities.“As prices just get too high above where they should be, people are going to look at the alternative,” said Ken Johnson, a real estate economist and professor at FAU in Boca Raton. “You’re going to see more people look toward multifamily.” The Beracha, Hardin & Johnson Buy vs. Rent Index measures future homeownership demand while analyzing whether it makes more sense to buy a home or rent one.

Buyers build equity, but renters may generate wealth as fast or faster if they reinvest the money they would have spent on owning, such as insurance, taxes, maintenance and other costs, Johnson and his co-creators say. The index tracks home prices, rental rates and investment streams in the markets. Johnson and FIU’s Eli Beracha expect renting to remain robust even as home price increases moderate in the years ahead. Values will continue inching up, but at a slower rate, they say.

“For so many years, we had abnormal price appreciation,” Beracha said. “Price appreciation in the next few years is probably not going to outpace inflation.”Five of the 23 metropolitan areas — Kansas City, Pittsburgh, Seattle, San Francisco and Miami –- show moderate dips in demand for buying, according to the index. Homeownership nationwide has lost momentum in recent years, and that slide isn’t likely to end soon, especially with changes to the tax code that eliminate some of the benefits of owning, analysts and economists say.

Florida’s homeownership rate has declined to the lowest level since 1989. In metropolitan Miami and the nation, apartment deliveries in 2019 are expected to top 2018, according to Elinor Avant Gutierrez of CoStar Market Analytics . What’s more, Miami-Dade County’s apartment inventory is forecast to grow at a faster rate than any of the nation’s 54 largest metro areas, CoStar research shows. A shortage of available land in some areas, including South Florida, has softened single-family homebuilding and placed a greater emphasis on apartment development, said Christos Costandinides, an economist with CoStar Market Analytics in Miami.

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“Culturally, people here in South Florida are more willing to live in smaller spaces and have access to more amenities where they live,” he said. In Dallas, Denver and Houston, overpricing concerns are rampant, according to Johnson. He expects those areas to struggle after experiencing relatively minimal downturns compared to the rest of the country during the last decade’s housing collapse.

Eleven markets – Atlanta; Boston; Cincinnati; Honolulu, Hawaii; Los Angeles; Milwaukee, Wisconsin; Minneapolis; Philadelphia; Portland, Oregon; San Diego; and St. Louis – will have mild declines in demand for owning, according to the housing index. Only four areas tracked by the index show increasing demand for owning in the coming years: Cleveland, Chicago, New York City and Detroit.

Reprinted with permission of the CoStar Group Inc. (NASDAQ: CSGP), commercial real estate’s leading provider of information, analytics and online marketplaces. For more information, visit www.costar.com.