This question used to have an easy answer for whoever was asking it. If you couldn’t afford a house, rent was affordable. If you could, homes were affordable. Here in 2022, with as wild a housing markets as we have seen, and now that Denver is the 5th most expensive housing market in the country, it has everyone moving here or already living here wondering if they should be renting now at all time highs or buying now at all time highs.
Thus far in May of 2022, we are seeing mortgage rates in the mid-5% range for 30-year notes. Back of the napkin, that is nearly or certainly double the rates of this same time in 2020. Now homes are more expensive, inflation has left our cash worth less, and mortgage rates are double. Seems like a great moment to rent.
Not so fast. Rents in the top 5 hottest neighborhoods in Denver are now a staggering $2250 for a one bedroom. To keep costs in line with a practical budget, spending no more than 33% of your income on rent, these rents require people to have an income of AT LEAST $103,680/yr (assuming $6750 in monthly take home pay). Gotcha. So only people who are making a lot of money are going to make it.
Certainly, renting can get cheaper if you have a partner or roomates, as double the space is not typically double the cost. And with many of us working from home, we need an office, otherwise we are working in our bedroom and spending 2/3rd of our lives in the same room.
Obviously, there are other neighborhoods that don’t cost this much, but just barely. The average across the city is $1879. It’s a discount off the top neighborhoods, but not by much.
Okay, so back to buying. The market is high, but people are not going to stop buying houses in Denver. It is a very desirable place to live. The weather is phenomenal. The vibe is relaxed. The outdoors are hard to beat. It’s a tough bill for Texans looking to escape the heat, but even at these prices, they are still discounts for Californians.
Something to consider is to look harder at various mortgage products and vehicles. We know the standard mortgage of 15 or 30 years, but inside of that there are still more unique ways. A local mortgage company here in Denver, American Financing, has a product called All in One Mortgage. This product is similar to how some people refinance HELOC products, however, with an All in One, you get all of the benefits of the revolving credit without all the drawbacks of the variable rate.
For most young buyers, they will be looking at a Jumbo mortgage loan, which is a loan that exceeds the conforming loan limit set by Federal Housing restrictions. Basically, many people will struggle early in life to come up with the $100+k that is required to buy an average priced home. So buyers need to look for lenders who offer Jumbo loans, as not everyone does. Many buyers are getting shocked and losing precious time not realizing they cannot afford a home with a particular set of lenders.
There is no right answer right now. Some people are taking the chance now to buy a home, even at the crazy mortgage rates, knowing that its value will continue to climb, and they can look for a time in the next 2-5 years to find lower interest rates and refinance a mortgage.
It also makes sense to pay that heavy rent right now, and wait for a better spot to buy when homes AND money are cheaper. Tough times right now if you need a place.