South Florida rental prices are still very high, but there are signs of improvement
As rental prices drop across the United States, South Florida may be late to the trend of renters seeing the same break in costs.
According to a recent study conducted by researchers at Florida Atlantic University and Florida International University, South Florida’s rental premium from the end of December to the end of January was higher than any other region analyzed in the state. But not all hope is lost: It’s still lower than it was six months ago, signaling improvement.
Premiums, which are essentially an extra chunk of money tenants succumb to either because of certain features about the unit or the fact it may have been recently renovated, are calculated using the average monthly rent in an area and where the average monthly rent “should be” based on historical rental pricing trends, according to FAU’s Waller, Weeks and Johnson Rental Index.
In the Miami-metropolitan area, which encompasses Miami-Dade, Broward and Palm Beach counties, the premium for January was 5.4%. This figure is determined by subtracting the average monthly rent from where the average rent should be. That difference is then divided by the “should-be” figure, which results in the premium percentage.
The cities with premiums closest to South Florida’s are Cape Coral and North Port, with premiums at about 3.9%. The premium in the Tampa market is slightly better at 2% while premiums in Orlando and Jacksonville fare even better at about 0.4% and -0.4%, respectively.
Though this is not a measure any renters want their city to be leading in, South Florida tenants may take some solace in knowing the region’s rental premium is lower now than it was six months ago when the premium was more than 9%, and before that it was even higher.
At that time, the average monthly rent in July was $2,817, but it should have been $2,578.
“The premium that you’re paying is still pretty high,” said Ken H. Johnson, a real estate economist at FAU’s College of Business. “It’s one of the highest in the country, but it it used to be double digits.”
Unfortunately for prospective homebuyers, the housing premium is in the double digits — more than 35%, according to FAU’s Top 100 Housing Markets January Data. The average price of a home in the Miami-metro market was $472,970 with the expected price at $348,882, creating a $124,088 difference.
“Renting and reinvesting might be a better choice than owning and trying to build equity at this point,” Johnson said.
Instead of spending money on “beer and cookies,” renters with the means to do so should consider seeking financial advising to create a wealth portfolio, Johnson said.
“Those that rent and reinvest on average, they outperform home ownership and building equity for wealth creation,” he said.
But renting just to rent, instead of solely working up to buy a home, shouldn’t be disqualified, either, Johnson said, especially given the current market conditions.
“We can’t just damn renting right out of the box because our parents and grandparents told us, ‘Why rent when you can own, don’t buy a home for somebody else,'” he said. “You got to think through this a little bit more, especially in today’s society.”