In metro Denver, it used to be more affordable to buy entry-level homes than to rent similar properties or apartments. A Realtor.com rental report indicates that investors now question whether to rent or buy because of steep home price increases before and during the pandemic.
Realtor.com calculates that new home buyers in the Denver area were paying $2,143 a month for a starter home, a 14.8% premium over rent of $1,866.
According to George Ratiu, manager of economic research at Realtor.com, “Solid gains in the price of homes for sale this year have pushed the market towards renting in Denver.”
According to the S&P CoreLogic Case-Shiller National Home Price Index for June, U.S. house prices rose 18.6% on an annual basis. Another record high was reached by the metro Denver index with a rise of 19.6%. Compared to last year, Phoenix, San Diego, and Seattle home prices rose by 29.3%, 27.1%, and 25.0%, respectively.
S&P DJI’s global head of index investment strategy, Craig Lazzara, said the house price growth rate set a record for the third consecutive month in June 2021. “The level and consistency of price gains across the country have been extraordinary over the last several months.”
Home prices are rising at record rates in some cities, including Denver, which is helping shift the balance in favor of renting. Realtor.com found that renting was less expensive than buying in twenty-six of fifty large metro areas.
A 33.1% discount was offered to buyers in Birmingham, Ala.; a 29.4% discount was offered in St. Louis; a 27.7% discount was offered in Pittsburgh; a 25.9% discount was offered in Orlando; and a 25.7% discount was offered in Cleveland.
A housing shortage and influx of immigrants in popular tech hubs, however, have pushed up home prices. With a savings of 79.2% or $1,228 a month, renting is the most cost-effective option in Austin, Texas.
Among other places where it is more affordable to rent than to buy are San Jose, Calif., where buying is 47.5% more expensive than renting; San Francisco, where it is 44.4% more expensive; Seattle, where it is 44.2% more expensive; Boston, where it is 40.9% more expensive; Los Angeles, where it is 39.4% more expensive; and New York, where it is 32.0% more expensive.
Buying in Denver may still be a good idea, since the gap between rents and home values remains small. Rateiu believes that an increase in the number of homes available for sale could slow price increases.
Although the buy-versus-rent ratio may remain stable in Denver for the next 12 months, he estimated that the market will not see the same imbalance as in Austin and Seattle.
We are happy to provide you with guidance according to your unique situation if you wish to discuss rent vs buy.