Renting vs. Buying? That is like asking Coke or
Pepsi—everyone has a different opinion. Recently, this topic has made national
attention. According to a recent Forbes article, Trulia’s economist Jed Kolko
reports that buying is still cheaper than renting in many US cities. Of
course, these numbers will vary by location, but the overall report leans
towards buying.
As mentioned, this topic becomes cyclical—higher mortgage
rates create more difficult home purchases, and higher monthly payments.
However, in locations that have low rental inventories available, the supply
and demand cycle drives rent prices higher.
The National Association of Realtors states the
following in their commercial real estate outlook news release:
"The apartment rental market – multifamily housing – should see
vacancy rates edge up from 4.0 percent in the first quarter to 4.1 percent in
the first quarter of 2015, with additional supply helping to meet growing
demand. Generally, vacancy rates below 5 percent are considered a landlord’s
market, with demand justifying higher rent."
Clearly, the tide may be slightly changing, but the national trend still lends itself to a landlord’s market.
So how does Durango rank? According to the Durango
Herald, Durango rentals are approaching $1,000, as compared to just over $700
in 2005. This increase is partially due to the lack of multifamily projects
built during the economic downturn. We have had our town’s population increase,
but have not continued to build rental properties to meet that growing need.
Without as much supply, the demand drives the rental prices higher.
Additionally, mortgage interest rates are still at
a historic low. Even with some increase in 2014, the rates remain well below
some of the national past trends.
As mentioned at the beginning of this article,
everyone has a different opinion on this topic. We ultimately believe buying
still makes more financial sense overall. However, a few factors should be
considered.
Primarily, the overall length of time in a home
makes a difference in profitability. In general, we recommend considering a 5
year length of time for primary home decisions. Typically, if we are attempting
to buy and sell within that time frame, the return on our investment will be
more difficult. Of course, life transitions and exceptions occur, but the
overall plan should be a solid length of time in a location.
Additionally, buyers should remember the
responsibilities of owning a home. Maintenance should be factored into the
decision to purchase a home, as well as the commitment made to monthly mortgage
payments and insurances.
If these factors cause a buyer to feel wary, then
renting may be the correct route. However, for most of us, we have a desire to
own a home. The freedom to make decisions in regards to a home’s look and feel
offers an intangible satisfaction. Most people buy homes for life stages—first
home married, the home to raise kids, then a retirement home. When considering
purchasing for these lengths of time, homeowners oftentimes make a profit when
they sell their homes due to the equity in them. In many cases, the sale of a
home may assist with retirement income or for many, the proverbial "nest
egg".
Durango is a desirable place to live. Home values
should appreciate over the next several years, and in my opinion, they will
average higher than the national average. Following the great recession, our
home values are back in line with long term inflation & appreciation.
Historically, over long periods of time, homes in Durango have increased in
value more than 5% per year. With mortgage rates still lower than much of our
history, we are confident home ownership makes both financial and logical
sense.
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