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New Index Suggests Where Prices Might Grow, Decline in United States

A person signs a contract for a new home.

As homebuyers look for opportunities in the real estate market, a new price-to-rent ratio from researchers at 麻豆女郎 and Florida International University sheds light on which metropolitan areas might see price growth or declines in the United States.


By amber bonefont | 8/16/2023

As homebuyers look for opportunities in the real estate market, a new price-to-rent ratio from researchers at 麻豆女郎 and sheds light on which metropolitan areas might see price growth or declines in the United States.

Areas with higher price-to-rent ratios, such as the West Coast, are more likely to face future price instability, or declines, according to . However, areas in the U.S., like the East Coast, with lower price-to-rent ratios should see far more stability in property prices, or potential growth.

"Low price-to-rent ratios strongly suggest higher average returns to ownership,鈥 said , Ph.D., real estate economist with 麻豆女郎鈥檚. 鈥淭hus, low price-to-rent ratios suggest it is better to own than rent on average in a particular market, and it is this increased demand for ownership that helps property price performance. The opposite is true for high price-to-rent ratios, which indicate renting on average is preferred to ownership and implies weakening demand, leading to less stable property prices.鈥

The monthly index, conducted by Johnson, along with researchers , Ph.D., of FIU鈥檚 and , Ph.D., dean of FIU鈥檚 , looks at the 100 most populated metros in the county and calculates the number of dollars in property price paid for each dollar in annual rent. Generally, a lower price-to-rent ratio, under 15, suggests that prices are stable and likely to grow. A higher price-to-rent-ratio, over 20, implies prices in the area are unstable due to lowering returns to ownership.

Cities in California and on the West Coast have some of the highest price-to-rent ratios in the nation. San Jose, California is 35.24; San Francisco, 29.52; Seattle, 25.96; Los Angeles, 24.95; Portland, Oregon, 24.40; and San Diego, 23.07.

鈥淚t is not surprising prices, until recently, have been falling quite significantly with property values down over 9 percent in the last 12 months in San Francisco,鈥 Beracha said. 鈥淚n general, once prices start to fall, they should do so until the local current price-to-rent ratio roughly equals the local historic average price-to-rent ratio.鈥

Many East Coast metros are showing signs for future price growth: Atlanta鈥檚 price-to-rent ratio is 15.65; Springfield, Massachusetts, 15.52; Orlando, 15.36; Tampa, 14.52; Cape Coral, 14.90; and Miami, 13.47.

鈥淐ape Coral is producing one of the strongest buy signals in the country,鈥 Johnson said. 聽鈥淚t鈥檚 current price-to-rent ratio of 14.92 is below its historic average, suggesting a significant return to ownership for the area. Miami metro鈥檚 price-to-rent ratio, combined with the area鈥檚 population influx and new household formation rate, implies the area should see stable price performance. The greatest threats to pricing in Miami are a significant decrease in mortgage rates, which would reignite prices, and a rapid increase in supply of new units, which could send prices tumbling.鈥

All three researchers have some concern over the apparent slowing population growth in South Florida, which could present problems down the line for price performance. Expected population growth has slowed noticeably: The tri-county area of Miami-Dade, Broward and Palm Beach is expected to see only a 6.8 percent expansion in its population over the next decade, while Orlando is anticipating an expected population increase of 22.5 percent, according to StatsAmerica.

聽鈥淗owever, that is a problem for another day,鈥 Hardin said.聽鈥淩ight now, we are still dealing with an inventory shortage that is helping to create a major housing affordability problem across Florida.鈥

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