There was a time when buying an entry-level home in metro Denver was more affordable than renting a similar property or apartment. Renters now have an advantage over homeowners because of steep home price increases before and during the pandemic, making investors question rent vs buy, according to a Realtor.com rental report.
In July, the cost for a new buyer in owning a starter home in the Denver area was $2,143 a month, a 14.8% premium over the median monthly rent of $1,866, according to calculations from Realtor.com.
“Solid gains in the prices of homes for sale during the first half of this year have pushed the (Denver) market in favor of renting,” said George Ratiu, manager of economic research at Realtor.com.
U.S. house prices rose 18.6% on an annual basis in June, according to the S&P CoreLogic Case-Shiller National Home Price Index. The metro Denver index rose 19.6%, also a record high. Home prices in Phoenix, San Diego, and Seattle increased by 29.3%, 27.1%, and 25.0% annually, respectively.
“June 2021 is the third consecutive month in which the growth rate of housing prices set a record,” said Craig Lazzara, global head of index investment strategy at S&P DJI in the monthly update. “The last several months have been extraordinary not only in the level of price gains but in the consistency of gains across the country.”
In some cities like Denver, those record-setting home price gains are helping shift the balance in favor of renting. Twenty-six of the fifty large metro areas examined by Realtor.com showed that renting was cheaper than buying.
The markets where buyers enjoy the largest cost savings over renters in July were Birmingham, Ala., with a 33.1% discount; St. Louis, with a 29.4% savings; Pittsburgh, with a 27.7% savings; Orlando, Fla., with a 25.9% savings, and Cleveland, with a 25.7% savings.
Popular tech hubs, however, see a different story, as a deficit of housing supplies and influxes of immigrants have pushed up home prices. In Austin, Texas, renting is the most cost-effective option, saving 79.2% or $1,228 a month.
Other more renter-friendly markets include San Jose, Calif., where purchasing costs are 47.5% higher than renting; San Francisco, at 44.4% higher; Seattle, at 44.2% higher; Boston, at 40.9% higher; Los Angeles at 39.4% higher; and New York, 32.0% higher.
Denver’s gap remains small enough that a buyer may want to lock in a fixed mortgage payment to avoid future rent hikes. Increasing supply of for-sale homes could help slow price increases, Ratiu said.
“While the buy-vs.-rent ratio may not swing in favor of buying in the next 12 months, Denver is not expected to see the significant market imbalance present in markets like Austin and Seattle,” he predicted