Market Conditions in Denver>Question Details

Don, Home Buyer in Denver, CO

purchase vs. rent

Asked by Don, Denver, CO Thu Jun 3, 2010

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19
Anna Brocco’s answer
It really depends on your finances, wants, needs, lifestyle--It’s all about costs and lifestyle. Costs—financing v. moving-in, mortgage v. rent, repairs v. upkeep. Lifestyle—stability v. mobility, predictability v. flexibility, equity v. freedom from debt. It used to be all about equity. Now, there are other variables to consider in the balancing of the buy/rent equation.
1 vote Thank Flag Link Fri Jun 4, 2010
There is a good article on exactly this subject in SmartMoney. The basic conclusion is that nationally, the ratio of house prices to rent costs is back to the pre-bubble average AND mortgage interest rates are excellent. Of course it only makes sense to buy if you will be in a home for more than a short time and if your financial situation is solid. The link to the SmartMoney article is below.

Kind regards,
Ron Rovtar
Prudential Real Estate of the Rockies
Days: 303.981.1617
Evenings: 303.473.1926
ron@rovtar.com
http://www.rovtar.com
0 votes Thank Flag Link Wed Oct 19, 2011
Hi Don,

Great questions and I am sure you have a multitude of different answers below. I think it all depends on your situation in life because as a Realtor, I am actually renting currently due to a relocation from another state where we were not able to sell our house (in Texas) and were forced to rent a home.

I think our industry is known for always saying "There has never been a better time to buy...." however in our current market conditions, I believe that more than ever right now. With our rates being at a historic all time LOW, consumers have more buying power than ever. Now I won't say that our home prices are dropping by any means because here in the Denver Metro area, we have a pretty stable market.

Here are some things though that I do find helpful as far as whether to consider renting or buying:

- Are you stable in this area? Are you planning to be here for another 5-7 years minimum? The typical homeowner stays in their home 5-7+ years and I think this is how people start to build wealth in their home.

- Are you able to qualify for a loan to truly fits your needs? If interest only or an ARM is how you want to go then I don't think you have a stable option because what happens when that rate goes up?!??

- Is your employment stable? This is important in any situation but I think for homeowners a little more so.

- Do you WANT to own a home? I have worked with buyers before that when all came down to doing business they didn't want to be a homeowner and no amount of work that I did was going to change that. They weren't motivated for themselves so I couldn't help them.

Let me know if you have any questions at all as I would be happy to help you with a purchase if that is in your future.

Thanks,
Brooke Hengst
REALTOR, CDPE, The Elite Team
Your Castle Real Estate
(720) 988-5952
bhengst1@gmail.com
http://www.brookehengst.com
Web Reference: http://www.brookehengst.com
0 votes Thank Flag Link Wed Oct 19, 2011
Weigh all the pros and cons of each consideration listed in this string. We do live in a mobile society and someone who is not certain that they will stay in the area for five years will want to give any decision on purchase vs. rent careful consideration.

I think personal bias is inescapable. Call it pride in ownership, ability to make major changes to your home, and the tax advantages are my personal top three factors favoring ownership.

The others are right. On this question, you should answer it for yourself. Young couples want a great place with great schools. That can be a rental. People make the decision to plant roots. Retirees want to live in a place that affords a particular lifestyle. Only you can answer these questions for yourself.

Generally, a home purchase is less expensive than renting in the Denver area. But, you should still do the math.

Check out these links:
http://www.thestreet.com/story/11232119/1/is-now-a-good-time…
http://video.cnbc.com/gallery/?video=1690044196
http://realestate.yahoo.com/calculators/rent_vs_own.html

Best to you,
SuZ
PML
of Longmont, CO
0 votes Thank Flag Link Sun Oct 16, 2011
Hi Don:

This is one of those questions that comes up often. Unfortunately, there is no right answer for everybody. A lot depends on your particular situation. For example, if you plan to stay in a home for a short time, then renting is probably your best option since most of your early mortgage payments goes toward interest and selling is expensive. On the other hand, if you will live in a home for a number of years, the percentage of each mortgage payment that goes to interest decreases over time with the remainder becoming "equity" (assuming that house prices in general are stable, which seems more likely now that we are apparently working our way through the problems of the last few years).

Of course, in working your numbers before you make a decision, you also should take the federal mortgage interest tax deduction into account, as well as maintenance costs for a home you own. And you should, of course, carefully work your numbers!

Kind regards,
Ron Rovtar
Prudential Real Estate of the Rockies
Days: 303.981.1617
Evenings: 303.473.1926
ron@rovtar.com
http://www.rovtar.com
0 votes Thank Flag Link Sat Oct 15, 2011
Don,

in most cases it is not only cheaper, but a better use of your money to purchase rather than rent. You will pay a mortgage whether you buy or rent. Either yours or someone else's. I have some detailed information that will help with your question. Just shoot me an email if you wouldn't mind me sending you that info

Robert McGuire
Your Castle Real Estate
Direct - 303-669-1246 http://www.rmcguire.yourcastle.org
0 votes Thank Flag Link Mon Aug 22, 2011
Ethan, you said "Buying a home is one of the smartest financial decisions most people will ever make. "

Can you honestly tell that to someone who bought a house in 2006 and now finds it is worth $250k less than they paid for it? They want to move but are stuck because they bought a house.

Buying a house is a good thing. Buying it to die in makes sense. Buying a house while it is still in bubble pricing territory only means when interest rates rise, wages remain stagnant, and you want to sell that you will lose money.

5% interest rates going to 7% ( a very small increase and likely to go higher) will reduce buying power by 23.9%. That means a $200k mortgage payment suddenly becomes a $152k mortgage payment. Do you think house prices will change to reflect buying ability? I do.
0 votes Thank Flag Link Fri Jun 4, 2010
Ethan, you said "If you rent, you'll always be poor."
I would disagree completely. I have never owned property and am worth 6 figures.

Renting, buying, it does not matter. income level does not matter. Spending is what matters. I did not spend, I saved, and now my NAV is better than most. I always chuckle when a realtor says that paying off a house saves you money. IN reality a house keeps costing more money to keep it out of the cellar. besides, when you retire you have to live in the house. Its value is purely shelter. You can't spend what you live in. Reverse mortgages only hurt those who use them.

"The longer you rent, the less likely you are to buy. You fall further and further behind. " Actually, the last few years have been making home ownership more and more affordable. I could not buy in 2000 I was about $15k short. I could not buy in 2002. I could not buy in 2006 (I was at least $40k short with a mortgage). Now in 2010 having saved a sizable amount of money (every paycheck as a habit) I am fully capable of buying with no mortgage..

Be careful of generalities. They fail when applied to specifics. Besides, I looked at the cost of buying verses renting for one person. With the difference in monthly cost they would save more money renting than would be built up buying over the life of a mortgage. in addition them renting saved them the cost of furnaces, roofs, windows, carpet, and everything else that goes bad in a house.

http://www.trulia.com/blog/dan_chase/2010/01/does_it_make_mo…
In 10 years you would have saved $204,000 by renting.
in 10 years you would have paid off $74,632. ($129k more by renting)

Granted that denies price changes. Those are uncertain. I bet on down not up. You bet the other way. We both are making an unprovable assumption. hence I left price changes out of the equation.
0 votes Thank Flag Link Fri Jun 4, 2010
Hi Don,

It is often cheaper to own than it is to rent.

Yup, the cliche is true: Buying a home is one of the smartest financial decisions most people will ever make.

Dont take my word for it. Take the Federal Reserves. Its Survey of Consumer Finances has consistently found a huge gap between the wealth piled up by homeowners and that accumulated by renters.

Average net worth of homeowners vs. renters
Annual income Owners Renters
$80,000 and up $451,200 $87,400
$50,000 to $79,999 $194,610 $25,000
$30,000 to $49,999 $126,500 $10,600
$16,000 to $29,999 $112,600 $4,240
Under $16,000 $73,000 $500

Home ownership builds wealth in two ways: through the forced savings of paying down a mortgage, and through appreciation -- the rise in the homes value over time.

The earlier you get in the game, the quicker you can get that appreciation working for you. The longer you wait well, the consequences can be stiff.

If you rent, youll always be poor. The longer you rent, the less likely you are to buy. You fall further and further behind.

Those who wait for the current housing boom to crash may be waiting a long time. Prices even in the most overheated markets could plateau or just rise more slowly in the future, maybe even returning to the 6% average annual gain the National Association of Realtors says is the norm nationally.

Call me if I can answer other questions or help you find a home for your budget. I will find you a great deal!

Ethan Besser
Broker Associate
Keller Williams - DTC
Cell: 303.856.8980
Fax: 303.539.4809
besser@kw.com

The Besser Choice in Real Estate!
0 votes Thank Flag Link Fri Jun 4, 2010
All very good answers. Recent surveys on rent/buy ratios for the top 20 cities showed Denver in the top half of affordability, but not as strong as some markets. Our ratio (average sales price/average rent) was about 16 which is sort of on the cusp; less expensive to rent, but with factoring in other intangibles, it still might be a good time to buy.
As stated, it all depends on your specific situation. If there are any doubts about job security or other assets, or pending large expenses, it probably makes much more sense to rent. However, if Denver is it, you have a secure job and income and you plan on staying for a while, now, with interest rates at artificially low levels, coupled with the market: we haven't yet transitioned to a seller's market, now is a great time to buy.

Chuck Strauss
Keller Williams DTC
720-318-7598
CStrauss@kw.com
0 votes Thank Flag Link Fri Jun 4, 2010
Purchase if you can. Things will change and interest rates will not be near or at 5% forever.
Prices are low.
0 votes Thank Flag Link Fri Jun 4, 2010
Perfect question... Here is a link to an article in the Wall Street Journal:

http://online.wsj.com/article_email/SB1000142405274870356160…

It all depends on the rent in the area that you are looking to buy, home prices in that area, and length of time you plan to live in said area. There are too may different area to give a specific answer which is why I linked to the article.
0 votes Thank Flag Link Fri Jun 4, 2010
A perfect question for your accountant!
There is a formula that can help evaluate which way to go but is dependan ton many variables...
I can put you intouch with my accountant and he can advise...
Kimberly Ryan
303-523-8333
0 votes Thank Flag Link Fri Jun 4, 2010
Don,

All great advice below. The short answer is depends. As with most decisions in life step one is gathering information to fairly evaluate both options. Should you need any assistance with that I am happy to help.

Derrek
303-470-9880
derrek.patrick@coloradohomes.com
0 votes Thank Flag Link Fri Jun 4, 2010
I forgot to add. Consider the site below for what is expected in house price changes in that area.
http://www.housingpredictor.com/colorado.html
Denver is no bellwether of the nation's financial crisis, nor is it for the housing bust. In terms of sales, Denver has seen the first time home buyers tax credit aid its market. Foreclosures had a devastating impact on the market, but defaults are easing and may have a lesser affect on the market than in more economically damaged areas of the country.

Homes priced under $250,000 are attracting growing numbers of buyers, and that could buoy the Denver market through the year. Some homes have even attracted multiple offers, especially lower priced foreclosures. Despite the probable rise in home sales in Denver in 2010, mortgage lending will still be tighter through most of the year, pressuring the market. Average housing prices are forecast to decline 4.8% for the year.

Also, as interest rates rise if incomes stay the same house prices will have to fall. A monthly payment at 5% will lose 23.9% of its buying power at 7% interest rates. That means a $200k house payment becomes a $152k house payment without sending any less money to the bank each month.
0 votes Thank Flag Link Thu Jun 3, 2010
Below are some blogs that can help with your decision. There is no one answer that is always correct. Length of ownership, difference in cost between the two options, repair costs, and more can change which is better.

Using your numbers see which makes more economic sense. Renting or buying it could be either.
http://www.trulia.com/blog/dan_chase/2010/01/does_it_make_mo…
Why renting could be the better choice even if buying is cheaper. A very different way to look at things below.
http://www.trulia.com/blog/dan_chase/2010/02/why_rent_if_you…
10 valid reasons to wait to buy a house. At least I think so. See what you think.
http://www.trulia.com/blog/dan_chase/2010/01/10_valid_reason…


When you have decided to buy. A list of things to find out. Knowing the answers can save you from a lot of problems that could otherwise be easily run into.
http://www.trulia.com/blog/dan_chase/2009/11/questions_i_wou…
0 votes Thank Flag Link Thu Jun 3, 2010
If you are asking if you should purchase over renting, it will depend on alot of factors.

-What's the market like in your area? Is it holding its own, still declining, slow? (There could be some great deals available)
-Have you spoken to a lender to see what and if you can afford to buy? (You may not qualify for a loan at this time)
-Would what you pay in rent be close to what you would pay for a mortgage? (Factor in monthly utilites as well)
-Do you plan on staying for a long period of time or short term?
-You can take a tax decudtion for the real estate taxes and some of the costs when purchasing.

Make a list of the pros and cons of each (buying vs. renting). One could out weigh the other or they could balance out. If purchasing runs about the same, then it may be worth it over renting.
0 votes Thank Flag Link Thu Jun 3, 2010
Don,

There are advantages to renting if you are not planning to stay in the city for more than 2-3 years and don't have a big down payment. Sometimes it also means that someone else takes care of the maintenance, utilities, etc.and your time and responsibilities are less.

On the other hand, in normal situations there are several good reasons to own a home. First, I always tell renters, "When will you be ready to purchase your own home rather than paying for someone else's home". There is a sense of freedom, pride of ownership, tax benefits, etc. Owning a home is the best way to begin to create wealth for yourself and your family. Of course there are expenses to home and lawn maintenance and upkeep of the home; but the benefits far outweigh any negatives.

If you are considering a purchase you can have a representative to walk you through all of the steps and processes and also make it a fun and memorable experience. Now is a good time to purchase since the prices are down and the interest rates are at a 50 year low. feel free to contact if you have additional questions or concerns. You can view articles and go to an up to date search engine on my website at listed below.

Robert McGuire ASR
Your Castle Real Estate
Realtor/Consultant
http://www.theRobertMcGuire.com
Direct: 303-669-1246
0 votes Thank Flag Link Thu Jun 3, 2010
According to Case Shiller there are markets within the U.S. (New York being the biggest) where renting is actually cheaper than owning. However the Denver Market was recently rated the 4th strongest economy in the nation. What is basically comes down to is your loan package vs. your renting opportunity. I, as a Real Estate agent, took advantage of a home that sold for 250,000 with rent around 1400. This is a steal. Obviously my opportunity costs would do better in the financial market with solid investments all across the board. So if I make a big return or even a partial one, my "actual" rent will be much cheaper considering the money I make in the market ( Cross your fingers). So much of it comes down to your situation. However, I will be the first to say that there are opportunities in the Denver Market for each side of the equation. Where renting is better than owning and where owning is better than renting. I live downtown in a neighborhood that was significantly affected by the downturn and IMO was overpriced in 06-07. Do good research and this market can be a good thing for you.
0 votes Thank Flag Link Thu Jun 3, 2010
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