- Rents are at an all-time high.
- Buying a home may make more sense than renting.
- Mortgage rates near all-time lows, but are inching up.
Yesterday, InsideRealEstateNews.com reported that the average monthly apartment rent in the Denver-area stood $1,117.12 at the end of the second quarter, an all-time record.
That is 9.3 percent higher than the average rent of $1,022.33 in the second quarter of 2013, but only about 5 percent higher, when adjusted for inflation, the average rent of $800 in 2002.
Digging deeper into the report by the Apartment Association of Metro Denver, the median monthly rent in the second quarter was $1,067.87, 11.6 percent higher than the median rent of $960.57in the second quarter of 2013.
A separate report released this week by Integra Realty Resources, showed the same trend, but slightly different numbers.
“The current average rental rate…is the highest average effective rental rate in the (Denver) market in over 20 years,” according to Integra, that describes itself as the largest independent commercial real estate valuation and consulting firm in North America.
Given the increasing rents, and with mortgage rates remaining surprisingly close to their all-time lows, a number of experts are saying consumers should consider buying rather than renting.
One mortgage loan officer, for example, posted on his Facebook page that “renters should stop throwing away their money,” and buy a house.
Housing consultant S. Robert August couldn’t agree more.
“Renters absolutely should consider buying,” said August, president of North Star Synergies. “And they will.”
Even if a renter is unable to buy a home today, either for financial reasons, or because they are locked into a rental contract, they should get the ball rolling by talking to a qualified real estate broker and loan officer, he said.
“With a little planning, a renter might be able to buy a home in six or nine months and start enjoying the American Dream of homeownership,” August said.
Home prices in the metro area have been rising around 9 percent a year, far more than the inflation rate of about 2 percent.
Still, there are obstacles to buying a home.
“…The loss of nearly 75,000 jobs in the Denver area during the economic downturn led many people to lose their owned housing unit and become records. Despite record low mortgage rates and increasing affordability, renting is the new reality for many former homeowners and new households due to higher underwriting guidelines,” according to the Integra report.
“All things being equal, you would expect to see more renters buying homes,” said Ryan McMaken, until recently the chief economist for the Colorado Division of Housing and now a consultant who has launched a blog, Rocky Mountain Economy.
“I’m sure a lot of renters would like to be homeowners, especially with interest rates starting to inch up,” McMaken said.
Many renters would be smart to buy a home to take advantage of mortgage rates before they spike, he said.
“Even with rising interest rates, housing prices are going to continue to go up because of the shortage of homes,” McMaken said.
The most severe shortage of homes if for entry level housing, which makes it especially tough for renters want to buy.
A large percentage of the apartment construction is centered in downtown Denver near Union Station and surrounding neighborhoods. Renters in those new buildings are paying top dollar.
Many young professionals who are living in apartments in downtown are paying north of $3.00 per square foot for an apartment, more than double the average price of $1.41 per square foot for an apartment in Denver.
In other words, they are renting a 700-square-foot apartment for $2,100 or more per month.
“We will have more affordable housing being built as soon as something is done to resolve the construction defect litigation laws in Colorado,” August said.
In the past, many of the new high-end apartments being built around Union Station, in LoHi, the Golden Triangle and other downtown neighborhoods would have been condos, August said.
“Once our construction defect laws are in the past, we will see an increase in condo construction, which has been the traditional way for many people to start climbing the housing ladder,” August said.
Independent real estate broker Gary Bauer said he expects a slow shift of renters becoming buyers.
“I don’t think we’re going to see a tremendous drove of renters making that shift all at once, but as the world turns and landlords raise rents by another 10 percent, a lot of renter will start to seriously wonder if they should look at other options,” he said.
Renters, however, need to consider that they likely will need at least 3 percent of the purchase amount for the downpayment, in addition to being able to make the monthly mortgage payment.
“But there are some CHFA (Colorado Housing and Finance Authority) programs out there where qualified people can get loans for as little as $500 down,” Bauer said.
Bauer and McMaken said it is interesting that currently demand is out-stripping supply for both apartments and homes.
“I’m actually surprised we haven’t seen more permits for both multifamily units and for houses,” McMaken said.
A lack of labor may be delaying the delivery of both homes and apartments, he said.
“The state of Colorado believes that we will create seven jobs every hour in 2014,” said Jeff Hawks, principal of the Denver office of ARA, formerly known as Apartment Realty Advisors, an apartment brokerage firm.
“Five Colorado residents turn 20 years old every hour, but we are only delivering one new apartment unit per hour. Sound like a shortage to me,” Hawks said.
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.
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