10 Cities Where a Home May Not Be a Good Investment

for sale sign

Photo by Justin Sullivan/Getty Images

Millennials may finally moving out of that rental (or mom and dad’s basement) and into a place of their own. First-time home buyers made up 32% of all sales in May 2015, up from 27% a year earlier, the most recent existing-home sales report by the National Association of Realtors (NAR) found.

Both millennials and younger Gen Xers who have put off home buying are dipping a toe in the real estate market. Yet these first-time buyers face some big challenges on their path to home ownership, including trouble qualifying for a mortgage and difficulty saving for a down payment. Finding a home in their price range is also a challenge. Thirty-nine percent of would-be buyers surveyed by NAR said that they couldn’t find a good house that fit their budget.

Even if young buyers can qualify for a mortgage and find a home they like, that doesn’t mean the property they’re buying is a good investment. Economists at Florida Atlantic University analyzed housing market data in 23 major U.S. cities to gauge whether buying a home or continuing to rent is likely to yield a better return. The researchers used historical data to compare the wealth people would accumulate by building equity in a home with what renters would earn by reinvesting the money they would have otherwise spent on the property.

The Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index, released in early June 2015, suggests that renting is a better financial move for many would-be buyers.

“Potential buyers should be cognizant that ‘the deals’ are out of the marketplace and that it is essentially a tossup between rent and ownership as to which way will, on average, provide greater wealth accumulation,” said Ken Johnson, Ph.D., a real estate economist and one of the authors of the index, in a statement.

While buying a home is still a smart financial move in some cities, including Chicago, Cincinnati, Cleveland, and Detroit, in others, the scales either tip toward renting or are neutral. Here are 10 cities where the BH&J Index suggests renting makes just as much sense, if not more, than buying.

For reference, we’ve also included the median sale price for homes and median rent in each city as of May 2015, courtesy of Zillow. (Note: The BH&J Index uses a unique methodology for determining the buy or rent signal for each city; the Zillow data is for informational purposes only.)

1. Dallas, Tex.

DallasTX

Source: BH&J Buy vs. Rent Index

  • Median sale price: $270,868
  • Median rent: $1,309

2. Denver, Colo.

denver

Source: BH&J Buy vs. Rent Index

  • Median sale price: $325,000
  • Median rent: $1,719

3. Houston, Tex.

houston

Source: BH&J Buy vs. Rent Index

  • Median sale price: Not available
  • Median rent: $1,490

4. Miami, Fla.

miami

Source: BH&J Buy vs. Rent Index

  • Median sale price: $324,035
  • Median rent: $2,530

5. Honolulu, Hawaii

honolulu

Source: BH&J Buy vs. Rent Index

  • Median sale price: $463,800
  • Median rent: $2,400

6. Pittsburgh, Pa.

pittsburgh

Source: BH&J Buy vs. Rent Index

  • Median sale price: $136,800
  • Median rent: $1,245

7. Portland, Ore.

portland, oregon

Source: BH&J Buy vs. Rent Index

  • Median sale price: $331,750
  • Median rent: $1,425

8. San Francisco, Calif.

San Francisco

Source: BH&J Buy vs. Rent Index

  • Median sale price: $1.13 million
  • Median rent: $4,000

9. Seattle, Wash.

seattle

Source: BH&J Buy vs. Rent Index

  • Median sale price: $468,525
  • Median rent: $1,800

10. Los Angeles, Calif.

los angeles

Source: BH&J Buy vs. Rent Index

  • Median sale price: $574,775
  • Median rent: $2,425

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