Rent growth makes buying enticing

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Highlights:

  • Yardi Matrix releases national apartment report.
  • By one metric, Denver apartment rents top nation.
  • Record rent levels, make buying a better option, local expert argues.
Snapshot of rent increases across the nation. Source: Yardi Matrix.

Snapshot of rent increases across the nation. Source: Yardi Matrix.

By one metric, Denver-area apartments in August showed the biggest percentage increase in the nation, according to a new report.

By other measures, Denver rental rate growth came in third, according to the national Yardi Matrix report.

The report showed that on a trailing 12-month average, which averages the last 12-months compared to the same period in 2014, Denver apartment rental rates were up just under 12 percent, the top in the nation.

The national average by that measure was 5.3 percent.

Year-to-date, rent growth in Denver increased by 10.3 percent, only topped by 15.3 percent and 11.7 percent, respectively, in Portland and San Francisco.

However you slice and dice it, most consumers with a several year ownership time horizon, would be better off buying a home than renting, according to housing consultant S. Robert August.

“This report is definitely the latest sign that most renters should be buying a home,” said August, principal of North Star Synergies.

Because of the home mortgage deduction and that over a long period of time home prices typically rise in value, buying over time is always more compelling than renting, August contends.

Recent events make buying even more enticing, he said.

“Consumers can take comfort that the recent problems with China’s stock market, even if it only had a short-term impact on U.S. stocks, makes it very unlikely that the Fed will raise interest rates in September, so mortgage rates will stay low,” August said.

Also, Fannie Mae recently unveiled a program requiring only a 3 percent down payment, he said.

And Wells Fargo  and other lenders are introducing new programs with extended lock periods, which will provide some protection for homebuyers, if rates should tick up, he said.

Not only are rents going up, but so are home prices, so renters will only pay more by waiting to buy, he said.

“Yes, I would say that without a doubt homes will cost more a year from now,” August said.

He said new home builders will be passing rising labor costs on to consumers. There is a correlation between resale home and new home prices, he said. Many buyers who can’t find a resale home, are putting in orders to buy a new home, he said.

“And most people spend some money on fixing up homes before they put them on the market and those renovation costs are going up,” August said.

Rising rental rates in the Denver area are being accompanied by thousands of new apartment units coming on the market.

“You would be a fool to not be worried about the potential of overbuilding, but we do our own internal supply and demand modeling and we think while there might be some softening in 2016 and possibly 2017, the apartment market will bounce back in 2017,’” said Jason Smith, a partner with Southern Californian-base ReyLenn, which has built a number apartment communities in Glendale and Boulder and is about to launch one in Arvada.

He said demand will remain strong for apartments, especially in places such as Arvada, which is close to downtown Denver, but where rents are considerably lower than in downtown and neighborhoods at the edge of downtown. Also, many apartment projects on the drawing board will not be built, he said.

In any case, in Denver many people are renters by choice, not because they can’t afford to buy a home, he said.

“A lot of millennials really don’t seem to have that much appetite to be home owners,” Smith said.

August, however, said that there are signs that more consumers are eager to buy homes, whether they are first-time buyers or move-up buyers.

“I’m just starting to get reports from builders in the Parade of Homes and they are telling me they are taking a lot of orders from qualified buyers, across all price ranges,” August said.

“From the reports I am hearing, it sounds like this Parade of Homes is generating the most interest ever from actual buyers,” August said.

He said that is because of the lack of inventory.

“The supply of homes has increased slightly, but from a historical perspective, we still could easily handle at least another 10,000 homes on the market,” August said.

The Parade of Homes ends on Labor Day weekend.

Have a story idea or real estate tip? Contact John Rebchook at JRCHOOK@gmail.com. DenverRealEstateWatch.com is sponsored by 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.

 

 

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John Rebchook

John Rebchook has more than 30 years of experience in writing and communications. As the Real Estate Editor for the Rocky Mountain News, he wrote about residential and commercial real estate for 26 years. He has won numerous awards for business stories and columns that he wrote, both as an individual and part of teams. In addition to real estate, he also covered economic development, banking and financing, the airlines, and cable TV for the Rocky. In addition, he was one of the original freelance writers for GlobeSt.com, covering commercial real estate for the Internet publication.

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