Are Record Apartment Rents a Catalyst to Buy?

April 28, 2015

Inside Real Estate

The overall average monthly apartment rent in the Denver area in the first quarter has crossed $1,200 for the first time.

The median monthly rent for all units also hit a record in the first quarter, according to the Denver Metro Area Apartment Vacancy and Rent Survey released on Tuesday.

The average rent in the Denver area at the end of the first quarter was $1,203.89, 12.1 percent higher than the $1,073.63 in the first quarter of 2014 and a 3 percent increase from the $1,168.65 in the fourth quarter.

For an apartment unit built after 2010, the average monthly rent was $1,649.39.

The overall average rent would be the equivalent to the principal and interest payment on a $260,000 home mortgage, amortized over 30 years with a 3.75 percent interest rate.

The most expensive rent would be the equivalent of a $355,000 mortgage.

“Without a question, anyone who plans to stay in the Denver area should be planning to buy a home instead of continuing to rent,” said S. Robert August, a local housing consultant.

Both apartment rents and home costs are at record levels in the metro area, noted August, principal of North Star Synergies.

However, the rental payment does not provide the tax breaks of a mortgage, he noted.

Perhaps more importantly, despite the record prices of homes, which were up 10 percent, year-over-year, according to the latest Case-Shiller report released on Tuesday, home prices are expected to continue to rise, August said.

“A renter, no matter how much he or she is paying, should be doing everything they can to try to buy a home,” August said.

“And they should be trying to buy as soon as possible, because home prices are continuing to go up,” he added.

“Historically, owning a home is a way to start building wealth,” August said. “Renting is not.”

Also, rock-bottom interest rates will not be around forever, according to August and other housing experts.

Meanwhile, the median monthly rent, and the rent per square foot, showed similar results.

The median first-quarter rent was $1,158.26, 13.4 percent higher than the $1,021.2 in the first quarter of 2014.

The first-quarter median rent was 3.07 percent more than the $1,123.81 in the fourth quarter.

Meanwhile, the average rent per square foot was $1.43, a 12.6 percent jump from $1.27 per square foot in the first quarter 2014 and a 2.9 percent increase from $1.39 in the fourth quarter.

The report for the first quarter of 2015 found that median rent in the seven-county Denver metro area was $1,158, up from $1,124 the previous quarter.

“It’s important to look at both median and average rent, because the overall average rent of $1,204 is being skewed to some degree by the newly constructed class A buildings,” said Mark Williams, executive vice president of the Apartment Association of Metro Denver.

The first quarter vacancy rate was 4.9 percent, compared with 5.1 percent in the first quarter of 2014.

However, it increased from 4.7 percent in the fourth quarter, as 1,560 new units were added, bringing the metro-wide total to 307,268.

“That translates to over 15,000 available apartments for those seeking to rent,” Williams said.

“Denver’s rental market may be a concern to some, but in comparison to other major cities, Denver rents are moderate,” the report notes, citing national Pierce-Eislen data. Pierce-Eislen is also a local sponsor of this report.

The data compares Denver to other major cities and finds that “Denver is in the middle of the rent range for the group,” according to the report.

Denver ranks ninth out of the major cities included in this rent comparison, with San Francisco topping the list.

The quarterly report is authored by Ron L. Throupe, a professor at the University of Denver Daniels College of Business and Jennifer L. Van Stroh of Colorado Economic and Management Associates.