Ken Johnson on renting in a hot housing market
When do prices in a housing market rise so fast that they become detached from a home’s “true” value? That’s something Ken Johnson, a long-time real estate professor at Florida Atlantic University, has been studying of late. Johnson compiles a monthly list of markets that he views as overvalued with places like Boise, Idaho, and Ogden, Utah ranking high on the list. Johnson argues that in some of the most overvalued markets, people are better off renting
Johnson joined the Houses in Motion podcast on HousingWire Daily to discuss how an overvalued market is determined and when might be a good time for homebuyers to rent, and real estate agents to cool their heels. He argues that in some of the most overvalued markets, people are better off renting. Johnson also spoke with HousingWire senior real estate reporter Matthew Blake about his time as an agent in the pre-Internet era, and changes in sales commissions over the years.
Here is a small preview of the interview, which has been lightly edited for length and clarity:
Matthew Blake: One really interesting point that you made very tangential, but I just wanted to follow up on this is. So basically one of the conceits of real estate and housing is that homeownership is important. Homeownership is good because homeownership builds wealth. Could you explain a little more what you were saying that investment in stocks and bonds might actually be better at building wealth than homeownership?
Ken Johnson: Sure, absolutely, so for the longest time we were told, ‘Own, don’t rent.’ Well, that’s true if those are the only two options where renting is not reinvesting any money that you would have put into housing, right? The comparison has always been owning versus renting, and not saving, or just owning and you’re building equity.
And the thing that always made owning so popular and a wise choice is a forced savings plan. So if you own you have to make that mortgage payment, which is building wealth and taking that mortgage balance down, while your housing goes up at the same time. But we’ve found if you rent the property, and reinvest the money, that can create more wealth.
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