A 1-bedroom loft in this Boulder building is available for rent at $3,000 a month.
Join the conversation. Take a poll at the end of this story.
Highlights:
- Rental vacancies high, vacancies low.
- However, real rates lower than nominal rates.
- Mortgages can be less expensive than rental costs.
In inflation-adjusted dollars, Denver-area renters typically are paying less today for an apartment than they were a decade ago.
But that is little consolation to today’s renters, who paid an average of $978.99 a month of rent in the Denver area at the end of the fourth quarter of 2012, according to an apartment report released Thursday
That is about 5 percent more than the average rent of $932.02 in the fourth quarter of 2011.
The all-time high rent, in nominal, or non-adjusted rental dollars, occurred in the third quarter of 2012, when the average rent was $988.42.
However, rents almost always drop in the fourth quarter from the third quarter for seasonal reasons, noted Ron L. Throupe, a business professor at the Daniels College of Business at the Burns School of Real Estate and Construction Management at the University of Denver.
In 2002, the average monthly rent in the Denver area was about $800, said Ryan McMaken, of the Colorado Division of Housing, one of the sponsors of the report. When adjusted for inflation in 2012 dollars the real rate, or when inflation is factored in, is equivalent to $1,021 per month.
“Of course, it’s not the same renters today as it was 10 years ago,” said McMaken, said.
“That does not mean squat,” to current renters that on paper, they are getting better a better deal in the current market than they were a decade ago, he added.
Because interest rates are so low, in one way it is surprising that rents are so high, said Jerry Kendall, a veteran apartment broker and finance expert, who has launched a new firm, Multifamily/Capital Advisors.
“In the past, when interest rates came down, apartment owners passed on some of the savings to their renters,” Kendall said.
“You don’t need to cut rents in today’s market, where there is no vacancy and no alternatives,” Kendall said. “That is bad news for renters, but good news for landlords.”
The overall vacancy rate at the end of last year was 4.9 percent, compared with 5.4 percent at the end of 2011. The vacancy rate was 4.3 percent in the third quarter of last year.
Peter Niederman, CEO of Kentwood Real Estate, recently noted that it is interesting that in the Denver-area, both rentals and the housing markets are strong.
Often, the rental and housing markets move in opposite directions.
“This happened in the ‘90s, too, during the tech boom,” said McMaken. “Both the for-sale housing market and the rental markets were rising.”
However, during that part of the real estate cycle, many renters were planning to buy.
“One reason, is back then renters saw homes as an investment and a way to create wealth,” Kendall said. “That has not the case in recent years,” when many home owners saw the value of their houses decline during the recession.
Still, he said owning a home in some geographic areas in the metro area, the monthly cost of owning a home can be less expensive than renting.
“I live in Stonegate in Parker, and with interest rates being so low, you can buy a home in Parker and have a mortgage around $1,200,” Kendall said.
“If you want to rent a nice apartment in the Douglas County area, you are going to be paying around $2,200 to $2,400 a month. That is quite a spread.”
However, it is harder to qualify for a mortgage than in the past, and some renters, because of financial downturns during the recession, may not have the needed credit and down payment to get a mortgage, Kendall said.
“And, you should probably plan to stay in your house for five or six years in order to recoup the closing costs,” McMaken said.
Loading ...Interested in finding a rental or putting a home in a rental pool? Please visit 8z Rentals.
Have a story idea or real estate tip? Contact John Rebchook at JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by Universal Lending, Land Title Guarantee and 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.
inflation adjusted rents are lower because inflation adjusted wages are also lower. Rents can only rise as much as wages.
in Colorado, over 500,000 of the 5,000,000 persons living in Colorado are on rely on food stamps. I’m sure many of these people are renters. How much more in rents do you think they would be able to pay each month? Also, student loan debt is taking it’s toll on renters. The average debt load is now over $27,000.
I’m guessing we are fairly close to a market clearing price for rents……
Both jobs and wages are increasing at a good pace in Denver. This will continue for several years, boosting rents and prices. Then, when inflation goes to double digits, prices will skyrocket.
Its pretty amazing that a landlords leveraged return can exceed 30% annually while rents are lower adjusted for inflation.
The bottom quintiles wages are completely stagnant in real and nominal terms. This group make up the majority of renter. No money to pay additional rent.
The bottom quintiles receive only SSA payments. Even these are increasing in nominal terms again…http://www.ssa.gov/cola/automatic-cola.htm
Most of the people on social security are over 67 and most likely own a home or are in assisted living subsidized by Medicare, or inter generational living. If they are on disability, they don’t work..
Here is a chart of people that do work.
http://www.advisorperspectives.com/dshort/updates/Household-Income-Distribution.php
Also DJ, if you are counting on government spending on social welfare programs to enable you to raise rents, your business model is completely flawed.
No i’m just pointing out your error. The bottom quintile do not work. They collect ssa disability, are retired on ssa, or are students. In any case, no matter how they get their money, and despite any push back from them, my tenants always are able to come up with a 5-10% rent increase annually whenever two things are happening; positive job growth and a vacancy rate near 5%. So no matter your argument, this tried and true always has and will work. I know from loads of experience.
DJ- I’m just looking at the data. Rents have not really gone up in the last 10 years and only went up 5% in a year with sub 4% vac rates(in Q4 rental rates fell, vac rate rose). Last year everyone was talking about 10%+ increases in rents. The 5% increase this year jjust about covers tax and insurance cost increases.
Manhattan has a 1.2% vacancy rate and only 5% rent appreciation rate.
Your math is flawed. If taxes and insurance are 5% of gross rents, then the total increase is 5% of 5% so .25%. Comparing Denver to NYC makes no sense whatsoever. My rents in Denver are up about 10% in the past year. Also, property values in Cap Hill are up about 35% in the past year. There’s some actual data for you.
No DJ my math is not flawed. I said that the 5% you increased rents just about cover the yearly price increase of your insurance and property taxes. So with your $500 per month unit(I assume since you are renting to people without jobs on ssa, this is the price point) the $25 per month increases(5%) would cover yearly increase to property taxes and insurance. Is it unreasonalble for your property taxes insurance to go up $125 each? If your property values did go up 35%, you can count on it. And my comparison to NY is just saying that rent prices are faily inelasic in any market. My point being, they have a vacancy rate close to zero and cannot push thru large rent increases.
NYC is a special case with rent controls and unlike any other city in the nation. I gurantee if the vacancy rate were 1% in Denver, which will never happen, prices would be increasing by double digits. Again, you fail to realize that a levered investor can achieve an enormous return even if rents are lower when adjusted for inflation. The numbers you quote are not what landlords in Denver are seeing, but even if they were acurate, the returns would far outpace the increase in costs.
Chicago(No rent controls, especially in Lincon Park with a vacancy rate of 1.6%) Data broken down by neighborhood… vacancy rates all lower than Denver, no YoY price increase more than 4.5% with an average of 2%.
http://yochicago.com/lincoln-park-has-lowest-apartment-vacancy-rate-highest-rent-increases/28573/
I not saying you can’t make money in muti family housing. I am saying don’t expect 10%+ rent increases. It does not happen……. The numbers i am quoting do come from landlords. This is where ARA and the Colorado division of housing get the data for these reports.
http://www.colorado.gov/cs/Satellite?blobcol=urldata&blobheadername1=Content-Disposition&blobheadername2=Content-Type&blobheadervalue1=inline%3B+filename%3D%222012%2C+Quarter+1+Report.pdf%22&blobheadervalue2=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1251823729881&ssbinary=true
Here is another forecast for Denver 2013….Marcus Millichap are calling for a 3.8% rent increase.
https://www.marcusmillichap.com/services/research/webreports/Denver/Apartment.aspx
Here is a link to reports on most major cities. As you can see, any cites have vacancy rates under 5 and rents only increase 2-3%. Guess what else is rising only 2-3% in nominal terms. Wages………
http://www.marcusmillichap.com/Services/Research/#1
http://www.marcusmillichap.com/Services/Research/#1
Im not saying you can always expect 10% growth, although it has been 10% in central Denver over the past year. Expect about 5-6% growth in rents for the next 5 years in metro Denver. Marcus & Millichap’s numbers and economic forecasting are a joke. Its almost as if a monkey threw darts. Ive been watching their numbers for years. The most accurate is the Von Stroh survey.