Mar 14, 2016

Common Sense About Buying Vs Renting In Denver

Despite WHAT the high price of housing or renting FEELS LIKE, buying a home around Metro-Denver can still be less expensive, than renting.  Buying a home remains the best option for most people and here's why.

When you make informed decisions about all of the factors at play, the only reasonable conclusion one arrives at is that buying a home remains the best long-term option.  Here are four of the most important considerations with buying vs renting in Denver:

1) The Shortage Of "Affordable" Rental Units.

The Shortage Of "Affordable" Rental Units around Denver-Metro continues to make apartments more expensive than buying. Recent estimates peg denver's shortfall of “affordable” housing units at 26,000.  In addition, Denver's population is projected to increase about the same amount next year as it will this year, putting additional pressure on renters.  This unrelenting demand has simply made rentals more expensive.

There's been much talk about a large supply of apartments under construction and coming to market.  But the majority of these new units are simply not affordable. Most are upscale units with nicer amenities, and they come with higher rental costs. The reality is that there will continue to be too little supply of affordable apartment units in the short term, and this will be chased by too much demand. Lack of supply of affordable units continues to put tenants of those type of properties in a position where they can't get relief from rising housing costs.

2) Interest Rates Are Currently Very Low (Rock Bottom).

As of March 2016, Denver's mortgage rates haven't been this low in 3 years, and current rates may be the lowest we've seen yet. Buying a home now and locking-in these low long-term rates will only benefit home buyers who come up with the money for down payments and closing costs.

Low interest rates make home ownership cheaper in the long-run.  Denver-area home buyers can expect to find 30-year rates in the low 3% range.  Those who buy a Denver property will lock-in these low interest rates for the long haul.

3) Buying Yields Predictable Housing Costs.

When you buy a home, condo, or townhouse in the Denver-metro market, your mortgage comes with a payment plan that shows you exactly how much you're required to pay each month until the property is either sold, or the loan is paid-off.  The monthly payment on a fixed-rate mortgage loan is guaranteed not to change (except for minor fluctuations in taxes and insurance). This gives property owners all the confidence of knowing how to budget and plan ahead. Conversely, rental prices rise over time, because rentals are investment property and subject to whatever the market will bear.  Profit is the primary motive of investors in rental real estate, and this profit motive subjects renters to the stress and uncertainly of future rental increases.

When will Denver home prices stop rising?  There’s been plenty of local news about whether Denver's home prices will stop climbing anytime soon.  Economists continue to say that Denver prices should continue to appreciate or rise in the short term, and they're calculating about 5% this year, and the same the following year.  Even if prices eventually do eventually flatten, this will most likely be temporary.  It's unlikely that Denver prices will fall, however.  Denver's diverse economy, blossoming transportation sector, high ranking livability and desirability factors, are all very strong and sustainable.  This only suggests that home prices will continue to rise as population growth increases.  Notice the historical home price graph, below, that shows home prices continually rising over time.

4) Buying Is Long-Term Investment That Yields Benefits And Dividends.

Buying a home gives property owners a piece-of-mind and control over their housing costs, and gives them stability and greater affordability as time passes.  Incomes have risen just as housing prices have over time, so locking-in your housing costs now brings more affordability in the future.  Apartment dwellers, on the other hand, have to continue to pay increasing rents over time.  When renters delay the process, the economic uncertainty just get pushed further down the road, but never goes away.  Another huge benefit for homeowners is they'll eventually get to stop making mortgage payments and own their properties outright, including all the future appreciation and tax breaks they've accrued.  Young Denver home buyers who're in their 20's and 30's can eventually expect to payoff their mortgages well before reaching retirement age. This also means their living expenses will drop significantly which is a huge relief, allowing these homeowners to avoid the pressure of rising costs and the instability of renting.

If this all makes financial sense and you'd like to seriously consider buying a property now, the next step is easy.  Just give me a call - my direct line is (303) 514-4000.  I’ll be happy to help you become a homeowner, sooner than later!

House Price Increases Rise Over Time - Historical 50 years

Michael Dagner

Michael Dagner is a real estate professional in Denver, Colorado.