Homebuying in Palm Beach County makes more financial sense than renting, but with caveats

The tables have turned in South Florida’s vexing real estate market, making it better to buy than rent, but just barely and there are caveats, according to a new study from Florida Atlantic University.

Despite sustained high home sale prices that in Palm Beach County reached record extremes this summer, housing economists at FAU and Florida International University said a continued influx of residents and a nagging lack of inventory means housing costs have likely stabilized and have the potential to grow.

Ken H. Johnson, FAU's lead author on the study, said until recently it was slightly better to rent than buy in the Miami-metro area, which includes Palm Beach, Broward and Miami-Dade counties.

This is the first time since the universities began generating the study in late 2022 that they are favoring buying a home over renting.

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“It was a close call, and it’s a close call today, but I’m changing the call,” Johnson said. “From an investment standpoint, this is one of the better returns in the country right now. It’s not a great position to be in, but it’s a good position to be in.”

The latest report, released Aug. 16, uses June data in a traditional price-to-rent ratio where the average home price is divided by the average annual rent.

For example, a home that cost $400,000 to purchase and is renting for $20,000 annually would have a price-to-rent ratio of 20-to-1, meaning for every $20 in purchase price, you pay $1 in rent.

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The report then looks at a seven-year average to get an idea of how much of a swing is occurring either way and ranks each housing market.

In the Miami-metro market of southeast Florida, the historic price-to-rent average is $12.52-to-$1. However, the current price-to-rent is $13.47-to-$1. The difference between the two is a premium of about 7%.

That's low enough that researchers say now is an OK time to buy, but there are conditions.

While buying a home for the long term makes sense, buying a home to quickly flip in an effort to make a big profit is likely a losing proposition.

“This isn’t a case of ‘Oh my gosh, you should buy now because you are going to make a ton of money,’” Johnson said. “This is a case of it’s OK to buy because you aren’t going to take a hit.”

Unlike the housing market crash of 2008, which was driven by bad loans and a glut of homes for sale, today's housing prices are a reflection of low supply and high demand, Johnson said.

"There is no reason to suspect that prices will fall significantly," he said.

The study includes a review of the nation’s top 100 housing markets' price-to-rent ratios. Areas with higher ratios are more likely to face future price fluctuations or declines. Areas with lower ratios are more likely to see stable prices or growth.

For example, several cities in California have some of the highest ratios in the nation, including San Jose ($35.24), San Francisco ($29.52), Los Angeles ($24.95) and San Diego ($23.07).

Seattle’s ratio is also high at $26 with Portland, Oregon following at $24.40.

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In Florida, areas with higher ratios than the Miami metro include Jacksonville ($16.17), Orlando ($15.36) and Tampa ($14.52).

Despite South Florida’s lower ratio, it doesn’t mean home prices are cheap.

In June, the median price to buy an existing single-family home was $625,000, which set a record by topping May’s price by $3,000. The average price was $1.06 million.

The median monthly rent for a one-bedroom apartment in West Palm Beach is $1,667, according to Apartment List. A two-bedroom costs about $2,077 a month.

Realtor Lyn Miller, of Continental Properties, specializes in the Boynton Beach area. He said there are homes available in lower price ranges, but the buyer may have to put up with some imperfections.

“When you walk in you may find a dark blue kitchen or a bright pink living room and they don’t want it,” Miller said about some homebuyers. “You can’t be super choosy, but some sweat equity can really bring up the value.”

In June, about 90 single-family homes and 530 townhomes or condominiums in Palm Beach County sold for under $300,000.

“If people want to go to Nebraska or Kansas or Arkansas, they can get cheaper, but it’s not Florida, it’s not paradise,” Miller said.

Johnson said the only thing that may ding home values in South Florida would be a return to record-low interest rates in the 3% range, something he doesn't foresee happening. As of Aug. 17, the average 30-year fixed rate mortgage interest rate was 7.09%, according to Freddie Mac.

He also noted the increasing population in Florida.

According to the University of Florida’s Bureau of Economics and Business Research, Palm Beach County’s population is expected to increase 17% by 2045 in a “medium” growth scenario. That’s an increase of 258,750 people. The “high” growth scenario shows a 37% population gain by 2045, or an increase of 569,650.

Also, a July 11 population report from the state's Demographic Estimating Conference said Florida's growth was "slightly stronger than expected" between April 1, 2022, and April 1 of this year because of a higher net migration of people coming into the state.

While deaths in Florida continue to outpace births, an average increase of 298,191 net new residents is expected each year through mid-2028. That's 817 people per day, or equivalent to adding a city slightly smaller than Orlando but larger than St. Petersburg, every year.

"The demographics are all in favor right now of buying," Johnson said. "I don't see any Florida cities as being at risk."

Kimberly Miller is a veteran journalist for The Palm Beach Post, part of the USA Today Network of Florida. She covers real estate and how growth affects South Florida's environment. Subscribe to The Dirt for a weekly real estate roundup. If you have news tips, please send them to kmiller@pbpost.com. Help support our local journalism, subscribe today.

This article originally appeared on Palm Beach Post: Finally! It's better to buy than rent in South Florida. But flipping?