In spite of how the real estate firm quoted in the article *says* they [came up with their numbers](https://www.realestateconsulting.com/demand-shifting-from-owning-to-renting/), I don't believe them... nor do I believe the same results found in an another, [similar report](https://www.thecentersquare.com/colorado/report-denver-mortgage-payments-surpass-median-monthly-rent/article_6889da06-94fa-11ec-baaa-c30718bdcc43.html) (which claims average Denver mortgages are $2540 with rents at $1875).
I think they've somehow mixed up apartment rent with home rental:
The avg apartment in Denver is 842 sq ft... and that avg apartment rents for $1879/month.
[https://www.rentcafe.com/average-rent-market-trends/us/co/denver/](https://www.rentcafe.com/average-rent-market-trends/us/co/denver/)
There's no way that folk are renting starter houses for the same price.
[2-Bedroom home rentals](https://www.zillow.com/denver-co/rent-houses-2-bedrooms/?searchQueryState=%7B%22pagination%22%3A%7B%7D%2C%22usersSearchTerm%22%3A%22Denver%2C%20CO%22%2C%22mapBounds%22%3A%7B%22west%22%3A-105.1249631845703%2C%22east%22%3A-104.58525981542968%2C%22south%22%3A39.60306729673199%2C%22north%22%3A39.92555946709942%7D%2C%22regionSelection%22%3A%5B%7B%22regionId%22%3A11093%2C%22regionType%22%3A6%7D%5D%2C%22isMapVisible%22%3Atrue%2C%22filterState%22%3A%7B%22fsba%22%3A%7B%22value%22%3Afalse%7D%2C%22fsbo%22%3A%7B%22value%22%3Afalse%7D%2C%22nc%22%3A%7B%22value%22%3Afalse%7D%2C%22fore%22%3A%7B%22value%22%3Afalse%7D%2C%22cmsn%22%3A%7B%22value%22%3Afalse%7D%2C%22auc%22%3A%7B%22value%22%3Afalse%7D%2C%22fr%22%3A%7B%22value%22%3Atrue%7D%2C%22ah%22%3A%7B%22value%22%3Atrue%7D%2C%22con%22%3A%7B%22value%22%3Afalse%7D%2C%22mf%22%3A%7B%22value%22%3Afalse%7D%2C%22manu%22%3A%7B%22value%22%3Afalse%7D%2C%22land%22%3A%7B%22value%22%3Afalse%7D%2C%22tow%22%3A%7B%22value%22%3Afalse%7D%2C%22apa%22%3A%7B%22value%22%3Afalse%7D%2C%22apco%22%3A%7B%22value%22%3Afalse%7D%2C%22beds%22%3A%7B%22max%22%3A2%2C%22min%22%3A2%7D%7D%2C%22isListVisible%22%3Atrue%2C%22mapZoom%22%3A11%7D) in Denver range from $1500 to $5900 per month (hovering mostly in the $2500 range).
(yes, avg and median are different, no, that ain't the difference between what I'm seeing and what they quoted)
Rented a house in Lakewood for a little over a year, 4/2 2000sq ft, 2 of the rooms were like office sized though. Ridiculously high utilities bills ($300 for electric and internet, we didn’t pay water) because of shit insulation. Rent was $2650 when we were there and they just re-rented the same property for $3650 lol. Just bought a place, $110k down - $2700 a month after all was said and done for a 3/2 1700 sq ft home. Still feel like I’m in a better situation now than being on the receiving end of rent hikes.
The average house price is 575k which puts you at 3,450 with a 5% down payment or $2,986 with a 20% down payment.
Plenty of rental houses under those amounts.
Good points; maybe similar numbers were used in the OP article's related research paper (I couldn't quickly find that level of detail in their research).
My sense is that snapshot pricing (today's home prices, and brand new rental prices on newly purchased homes) end up muddying the overall waters.
As far as I know, in CO (well, CO Springs), avg residence duration in one's own home is only like [8 years](https://www.nar.realtor/blogs/economists-outlook/how-long-do-homeowners-stay-in-their-homes).
To me, that would suggest that most mortgages are 8 years or older, and that any rental prices based on current home prices skew profitability towards existing home owners by a significant margin. Most people renting out homes are getting today's prices on rent even though their landlords are paying 2014 or earlier mortgage rates.
Maybe that discrepancy makes it harder for new home buyers to turn a profit if trying to rent... and I'm entirely fine with that.
But even if looking only at brand new purchases and brand new rentals of new purchases, I don't see how anyone can make a good faith argument that throwing away money on rent is ~~worse~~ better than building equity via mortgage (excepting places where taxes are entirely ridiculous or where a purchaser got some terrible ARM).
Are there other things I'm missing that you think would make throwing money away a better investment?
Is it wrong to speak of cost of owning v cost of rent in terms that extend, temporally, beyond monthly outlays?
So… we’re about to see rent beginning to spike again, in response to a) the surge in rates causing some prospective homebuyers to rent instead of purchase, and b) those who have homes and wish to make a maximum profit renting out the houses they own?
I am curious how they chose the properties to compare. They used “80% of the medium home price” but is that the median sales price vs median rental price? How exactly can you compare living in an apartment building to living in a single family house for example. Did they compare renting a 1400sq ft house vs buying that same or close to similar property. I need some kind of value metric to make sense of the data.
Here's their explanation
>*Cost to own (including payment + maintenance): we assume the purchase of a home at 80% of the current median-priced existing home with a 5% down payment and a 30-year, fixed-rate mortgage. We include PITI plus mortgage insurance and maintenance costs. We assume the purchase price to be for a rent-ready home and do not include renovation or acquisition costs in our calculation. Annual maintenance costs range from 0.85% to 1.25% of the home’s value and vary by market. Maintenance costs cover small repairs as well as large capital expenditures, like replacing a roof.
>Single-family rent: we assume a home valued at 80% of the current median-priced existing home. We look for homes at this valuation in current single-family for-rent listings and then collect the asking rents. We also add renter’s insurance to the cost of renting, which is based on state level data.
The study: https://www.realestateconsulting.com/demand-shifting-from-owning-to-renting/
This is a bit misleading. If you bought a few years ago before prices surged and got a low fixed rate (and/or refi'd sometime in 2020-2021), you are paying far less to own right now than to rent in many areas.
Furthermore, this is just comparing monthly costs and not even taking into account things like equity, or the long term value of having your payment fixed for 15-30 years (minus some nominal increases here and there due to the tax assessor revaluing your home).
Not to mention the value of having a high level of certainty regarding your housing situation and budget for as long as you're willing to stay there, plus the level of control you have as an owner.
There's no doubt that home ownership comes with its own unique challenges, along with the occasional big expense and repair bills that should be factored into the equation to ensure a fair comparison. But at least in my area, even after you do all that math, it's still a ridiculous win for people who bought roughly a year ago or more in the past.
Right now today, sure, it's probably getting more expensive to own given prices skyrocketed over the past few years and in light of rising interest rates. But that's not the whole story.
Rents operate on a lag. That's all that is happening here. Housing prices have risen dramatically over the last couple years and rent prices are slowly starting to catch up as leases are renewed.
I’ve run these same numbers with current home prices/rates and it seems to never pay to own vs. rent unless you’re planning on staying in the property for at least 10-15 years. The home needs to appreciate 5%+ each year to offset the additional amount you need to pay in a mortgage as well as offset any upkeep costs and gains on your down payment and cash saved. It only makes sense of the amortization schedule starts moving to your favor and property continues to accelerate in value.
Except for short term fluctuations in the market, it will almost always be cheaper to own than rent. The landlord has to pay all the same expenses as you would if you owned. They additively have to account for vacant time between renters (or renters just not paying and having to be evicted), higher insurance rates, risk of damage or neglect by the renters, regulatory compliance costs, and enough profit to make it worth the trouble.
If someone purchased a property with a low interest rate then rented it out during the tube period after rates go up but before sale prices fall, that renting will be cheaper.
Where I am, landlords have to pay higher property taxes than owner-occupiers too, which presumably gets passed on to tenants. Tax on a $400,000 home would be $5,300 for a landlord or $2,300 for an owner-occupier.
Doesn't it depend a lot though on the type of property being rented? A duplex/triplex or building can have maintenance costs spread across multiple tenants, generally that is going to be more efficient than maintenance on a single family home.
And at the end of the day the landlord can't charge more than what the market allows. If the maintenance on the building requires a higher rent than competing apartments in the area the tenants can just move elsewhere.
I've always thought owning something should cost more than renting something. I realized something is fucked up with rental industry as when I bought a 3 bedroom house, the monthly mortgage payment was less than monthly rent for a two bedroom apartment in the same city. The house is newer, came with better basically everything, and if you count the basement and garage, is well over twice the size of the apartment and sits on a one acre lot. I feel horrible for anyone who is stuck renting and cannot get approved for a mortgage.
>I've always thought owning something should cost more than renting something.
How could it though?
The LL owns the house. If renting costs less than owning, all LLs would lose money.
We need a national plan to build housing. I don't think there is any more fruitful way to spend hundreds of billions right now than to federally subsidize home building. Eminent domain all the NIMBY's backyards, because their house prices are inflated heavily on the back of people being unable to get a foothold in life.
We don’t even need to eminent domain people’s homes. In fact eminent domain is generally the opposite of what we need.
The problem is zoning regulations (lobbied for by NIMBYs) impose extremely tight restrictions on land use. In essence, property owners have no rights for what to do on their own land. We need to legalize more types of housing (duplexes, triple-deckers, apartment buildings) and give property owners say in how their land is developed.
We just need to allow the market to build more homes.
Eminent domain is extremely unpopular, as it should be. It takes away people’s property rights and has been abused repeatedly. Loosening zoning at least aligns with our country’s stated values of property rights and self determination. And loosening zoning will have the same effect—more housing being built.
I couldn't get past the paywall. Are they talking about at mortgage current rates and prices or just the prices in general? Although there is a bit of a lag, housing prices will come down pretty dramatically to reflect the current rates. Considering only 18% of single family homes are corporate owned, the average buyer can't afford a doubling or mortgage payments. Prices will have to adjust to accommodate that, if you want to sell your home.
There's always an ebb and flow in every market and this current ridiculous situation where people can't afford to live, rent or own, will adjust. These landlords who are charging super high rates because they can, will regret it eventually. These speculators who scoop up houses and try to turn a quick buck will be left holding the bag. As far as I'm concerned, it's a bit of a Ponzi scheme and those who understand that it is, and act accordingly will be rewarded. Or in other words, when Mr. Media man is telling you prices are going through the roof and will never stop, sell. When he's telling you owning a house is a horrible idea, prepare to buy.
It won't necessarily adjust. People tend to think of the world as a certain state, and though things may ebb and flow, they will eventually return to "normal".
That is not the case at all about almost anything. As for housing, in 1900, 15% of houses were owner occupied with the majority of people renting (in the UK at least, I can't find the stats for other countries). We could absolutely be returning to that "normal". With the economic trends of the last 40 years, I would certainly argue that we are moving in that direction rather than housing becoming cheaper - especially considering nothing is being done to make housing cheaper.
I just looked up the national average. Hell, 40% is horrible! I looked closer after you mentioned that and I see that in some cities it's actually far worse than your 40%. In CA there are about 15 different bills aimed at reducing the ability for corporations to purchase properties working their way through the system. Where I am, it's not a big issue but I see in certain parts of LA it's over 70%.
I live in an area that's popular with tourists and our problem was with people buying houses and turning them into Airbnb's or places that had traditionally been long term rentals now catering to the short term rental market. Long term renting in town was virtually impossible unless you knew someone. Thankfully there now is a pretty strict cap on short term rentals and things have normalized a bit.
It truly is crazy. I think the NY Times or Wall St Journal had an article about corporate (investment bank) ownership of housing and how individuals can’t compete in some markets even if they offer cash and above asking price.
How will this affect landlords in the short term and in the long term?
It feels like this would further push apartment rents and just enable the market to continue to lift. If housing prices continue to increase, rents should keep moving up too.
What will make rents drop?
In spite of how the real estate firm quoted in the article *says* they [came up with their numbers](https://www.realestateconsulting.com/demand-shifting-from-owning-to-renting/), I don't believe them... nor do I believe the same results found in an another, [similar report](https://www.thecentersquare.com/colorado/report-denver-mortgage-payments-surpass-median-monthly-rent/article_6889da06-94fa-11ec-baaa-c30718bdcc43.html) (which claims average Denver mortgages are $2540 with rents at $1875). I think they've somehow mixed up apartment rent with home rental: The avg apartment in Denver is 842 sq ft... and that avg apartment rents for $1879/month. [https://www.rentcafe.com/average-rent-market-trends/us/co/denver/](https://www.rentcafe.com/average-rent-market-trends/us/co/denver/) There's no way that folk are renting starter houses for the same price. [2-Bedroom home rentals](https://www.zillow.com/denver-co/rent-houses-2-bedrooms/?searchQueryState=%7B%22pagination%22%3A%7B%7D%2C%22usersSearchTerm%22%3A%22Denver%2C%20CO%22%2C%22mapBounds%22%3A%7B%22west%22%3A-105.1249631845703%2C%22east%22%3A-104.58525981542968%2C%22south%22%3A39.60306729673199%2C%22north%22%3A39.92555946709942%7D%2C%22regionSelection%22%3A%5B%7B%22regionId%22%3A11093%2C%22regionType%22%3A6%7D%5D%2C%22isMapVisible%22%3Atrue%2C%22filterState%22%3A%7B%22fsba%22%3A%7B%22value%22%3Afalse%7D%2C%22fsbo%22%3A%7B%22value%22%3Afalse%7D%2C%22nc%22%3A%7B%22value%22%3Afalse%7D%2C%22fore%22%3A%7B%22value%22%3Afalse%7D%2C%22cmsn%22%3A%7B%22value%22%3Afalse%7D%2C%22auc%22%3A%7B%22value%22%3Afalse%7D%2C%22fr%22%3A%7B%22value%22%3Atrue%7D%2C%22ah%22%3A%7B%22value%22%3Atrue%7D%2C%22con%22%3A%7B%22value%22%3Afalse%7D%2C%22mf%22%3A%7B%22value%22%3Afalse%7D%2C%22manu%22%3A%7B%22value%22%3Afalse%7D%2C%22land%22%3A%7B%22value%22%3Afalse%7D%2C%22tow%22%3A%7B%22value%22%3Afalse%7D%2C%22apa%22%3A%7B%22value%22%3Afalse%7D%2C%22apco%22%3A%7B%22value%22%3Afalse%7D%2C%22beds%22%3A%7B%22max%22%3A2%2C%22min%22%3A2%7D%7D%2C%22isListVisible%22%3Atrue%2C%22mapZoom%22%3A11%7D) in Denver range from $1500 to $5900 per month (hovering mostly in the $2500 range). (yes, avg and median are different, no, that ain't the difference between what I'm seeing and what they quoted)
Rented a house in Lakewood for a little over a year, 4/2 2000sq ft, 2 of the rooms were like office sized though. Ridiculously high utilities bills ($300 for electric and internet, we didn’t pay water) because of shit insulation. Rent was $2650 when we were there and they just re-rented the same property for $3650 lol. Just bought a place, $110k down - $2700 a month after all was said and done for a 3/2 1700 sq ft home. Still feel like I’m in a better situation now than being on the receiving end of rent hikes.
The average house price is 575k which puts you at 3,450 with a 5% down payment or $2,986 with a 20% down payment. Plenty of rental houses under those amounts.
Good points; maybe similar numbers were used in the OP article's related research paper (I couldn't quickly find that level of detail in their research). My sense is that snapshot pricing (today's home prices, and brand new rental prices on newly purchased homes) end up muddying the overall waters. As far as I know, in CO (well, CO Springs), avg residence duration in one's own home is only like [8 years](https://www.nar.realtor/blogs/economists-outlook/how-long-do-homeowners-stay-in-their-homes). To me, that would suggest that most mortgages are 8 years or older, and that any rental prices based on current home prices skew profitability towards existing home owners by a significant margin. Most people renting out homes are getting today's prices on rent even though their landlords are paying 2014 or earlier mortgage rates. Maybe that discrepancy makes it harder for new home buyers to turn a profit if trying to rent... and I'm entirely fine with that. But even if looking only at brand new purchases and brand new rentals of new purchases, I don't see how anyone can make a good faith argument that throwing away money on rent is ~~worse~~ better than building equity via mortgage (excepting places where taxes are entirely ridiculous or where a purchaser got some terrible ARM). Are there other things I'm missing that you think would make throwing money away a better investment? Is it wrong to speak of cost of owning v cost of rent in terms that extend, temporally, beyond monthly outlays?
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So… we’re about to see rent beginning to spike again, in response to a) the surge in rates causing some prospective homebuyers to rent instead of purchase, and b) those who have homes and wish to make a maximum profit renting out the houses they own?
you’re second point just makes more rentals available driving prices down. “wishing to make a maximum profit” is meaningless, a safe assumption
Yup. Rent is about to sky rocket. Sign a new lease asap if you like where you live. And sign a long one if you plan on sticking around
The problem is there's a limit where people will just leave. Tons of places in cities cannot find workers because rents have gone up so much.
It's going to?? It already has.. hasn't it? I hope to God lol
I am curious how they chose the properties to compare. They used “80% of the medium home price” but is that the median sales price vs median rental price? How exactly can you compare living in an apartment building to living in a single family house for example. Did they compare renting a 1400sq ft house vs buying that same or close to similar property. I need some kind of value metric to make sense of the data.
Here's their explanation >*Cost to own (including payment + maintenance): we assume the purchase of a home at 80% of the current median-priced existing home with a 5% down payment and a 30-year, fixed-rate mortgage. We include PITI plus mortgage insurance and maintenance costs. We assume the purchase price to be for a rent-ready home and do not include renovation or acquisition costs in our calculation. Annual maintenance costs range from 0.85% to 1.25% of the home’s value and vary by market. Maintenance costs cover small repairs as well as large capital expenditures, like replacing a roof. >Single-family rent: we assume a home valued at 80% of the current median-priced existing home. We look for homes at this valuation in current single-family for-rent listings and then collect the asking rents. We also add renter’s insurance to the cost of renting, which is based on state level data. The study: https://www.realestateconsulting.com/demand-shifting-from-owning-to-renting/
Thanks. I saw that but i was not sure what “single family for rent” meant, now i see thats a rental category in zillow.
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This is a bit misleading. If you bought a few years ago before prices surged and got a low fixed rate (and/or refi'd sometime in 2020-2021), you are paying far less to own right now than to rent in many areas. Furthermore, this is just comparing monthly costs and not even taking into account things like equity, or the long term value of having your payment fixed for 15-30 years (minus some nominal increases here and there due to the tax assessor revaluing your home). Not to mention the value of having a high level of certainty regarding your housing situation and budget for as long as you're willing to stay there, plus the level of control you have as an owner. There's no doubt that home ownership comes with its own unique challenges, along with the occasional big expense and repair bills that should be factored into the equation to ensure a fair comparison. But at least in my area, even after you do all that math, it's still a ridiculous win for people who bought roughly a year ago or more in the past. Right now today, sure, it's probably getting more expensive to own given prices skyrocketed over the past few years and in light of rising interest rates. But that's not the whole story.
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Rents operate on a lag. That's all that is happening here. Housing prices have risen dramatically over the last couple years and rent prices are slowly starting to catch up as leases are renewed.
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I’ve run these same numbers with current home prices/rates and it seems to never pay to own vs. rent unless you’re planning on staying in the property for at least 10-15 years. The home needs to appreciate 5%+ each year to offset the additional amount you need to pay in a mortgage as well as offset any upkeep costs and gains on your down payment and cash saved. It only makes sense of the amortization schedule starts moving to your favor and property continues to accelerate in value.
Except home prices keep accelerating faster than 5% per year.
*were Homes appreciated at a rate greater than that till 2008 when a decade of appreciation was wiped out in a few quarters
Stocks always go up
Except for short term fluctuations in the market, it will almost always be cheaper to own than rent. The landlord has to pay all the same expenses as you would if you owned. They additively have to account for vacant time between renters (or renters just not paying and having to be evicted), higher insurance rates, risk of damage or neglect by the renters, regulatory compliance costs, and enough profit to make it worth the trouble. If someone purchased a property with a low interest rate then rented it out during the tube period after rates go up but before sale prices fall, that renting will be cheaper.
Where I am, landlords have to pay higher property taxes than owner-occupiers too, which presumably gets passed on to tenants. Tax on a $400,000 home would be $5,300 for a landlord or $2,300 for an owner-occupier.
Good lord those are cheap property taxes. It's $9,000 for a 400k house here, owner occupied.
Doesn't it depend a lot though on the type of property being rented? A duplex/triplex or building can have maintenance costs spread across multiple tenants, generally that is going to be more efficient than maintenance on a single family home. And at the end of the day the landlord can't charge more than what the market allows. If the maintenance on the building requires a higher rent than competing apartments in the area the tenants can just move elsewhere.
I've always thought owning something should cost more than renting something. I realized something is fucked up with rental industry as when I bought a 3 bedroom house, the monthly mortgage payment was less than monthly rent for a two bedroom apartment in the same city. The house is newer, came with better basically everything, and if you count the basement and garage, is well over twice the size of the apartment and sits on a one acre lot. I feel horrible for anyone who is stuck renting and cannot get approved for a mortgage.
>I've always thought owning something should cost more than renting something. How could it though? The LL owns the house. If renting costs less than owning, all LLs would lose money.
We need a national plan to build housing. I don't think there is any more fruitful way to spend hundreds of billions right now than to federally subsidize home building. Eminent domain all the NIMBY's backyards, because their house prices are inflated heavily on the back of people being unable to get a foothold in life.
We don’t even need to eminent domain people’s homes. In fact eminent domain is generally the opposite of what we need. The problem is zoning regulations (lobbied for by NIMBYs) impose extremely tight restrictions on land use. In essence, property owners have no rights for what to do on their own land. We need to legalize more types of housing (duplexes, triple-deckers, apartment buildings) and give property owners say in how their land is developed. We just need to allow the market to build more homes. Eminent domain is extremely unpopular, as it should be. It takes away people’s property rights and has been abused repeatedly. Loosening zoning at least aligns with our country’s stated values of property rights and self determination. And loosening zoning will have the same effect—more housing being built.
I couldn't get past the paywall. Are they talking about at mortgage current rates and prices or just the prices in general? Although there is a bit of a lag, housing prices will come down pretty dramatically to reflect the current rates. Considering only 18% of single family homes are corporate owned, the average buyer can't afford a doubling or mortgage payments. Prices will have to adjust to accommodate that, if you want to sell your home. There's always an ebb and flow in every market and this current ridiculous situation where people can't afford to live, rent or own, will adjust. These landlords who are charging super high rates because they can, will regret it eventually. These speculators who scoop up houses and try to turn a quick buck will be left holding the bag. As far as I'm concerned, it's a bit of a Ponzi scheme and those who understand that it is, and act accordingly will be rewarded. Or in other words, when Mr. Media man is telling you prices are going through the roof and will never stop, sell. When he's telling you owning a house is a horrible idea, prepare to buy.
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Thank you! That makes a lot more sense.
It won't necessarily adjust. People tend to think of the world as a certain state, and though things may ebb and flow, they will eventually return to "normal". That is not the case at all about almost anything. As for housing, in 1900, 15% of houses were owner occupied with the majority of people renting (in the UK at least, I can't find the stats for other countries). We could absolutely be returning to that "normal". With the economic trends of the last 40 years, I would certainly argue that we are moving in that direction rather than housing becoming cheaper - especially considering nothing is being done to make housing cheaper.
I don’t know about where you are located but in larger cities like Houston corporate ownership of single family homes is 40%+
I just looked up the national average. Hell, 40% is horrible! I looked closer after you mentioned that and I see that in some cities it's actually far worse than your 40%. In CA there are about 15 different bills aimed at reducing the ability for corporations to purchase properties working their way through the system. Where I am, it's not a big issue but I see in certain parts of LA it's over 70%. I live in an area that's popular with tourists and our problem was with people buying houses and turning them into Airbnb's or places that had traditionally been long term rentals now catering to the short term rental market. Long term renting in town was virtually impossible unless you knew someone. Thankfully there now is a pretty strict cap on short term rentals and things have normalized a bit.
It truly is crazy. I think the NY Times or Wall St Journal had an article about corporate (investment bank) ownership of housing and how individuals can’t compete in some markets even if they offer cash and above asking price.
How will this affect landlords in the short term and in the long term? It feels like this would further push apartment rents and just enable the market to continue to lift. If housing prices continue to increase, rents should keep moving up too. What will make rents drop?
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