Should you rent or buy a home in Denver?

Zillow calculates which makes most financial sense
Posted at 7:29 AM, May 21, 2018
and last updated 2018-05-21 09:29:18-04

DENVER — It’s a question people ask themselves more and more in Denver’s hot housing market: Does it make more financial sense to rent or buy a home?

Zillow is out with a new report that finds in the Denver metro area, the “breakeven” point is two years and three months.

If you live in a house less than that amount of time, it makes more sense to rent. Beyond two years and three months, it makes more sense to own.

Zillow’s Buy-Rent Breakeven Horizon for the first quarter 2018 found the breakeven point nationwide is 1.96 years – or a little under a year and 11 months. Usually housing markets with more expensive homes have longer breakeven points. The longest in the country is Los Angeles, with a breakeven point of 3.7 years.

Here’s how Zillow calculates its Breakeven Horizon:

Zillow estimates a unique Breakeven Horizon for up to 3,000 individual homes pulled randomly from each ZIP code and uses the Zestimate and Rental Zestimate on the same houses, so we’re able to consider the costs of buying a house against the costs of renting that same house.

For buying, we assume:

  • A 20 percent down payment
  • Monthly payments on a 30-year fixed rate mortgage at the current interest rate for people with credit ratings between 680 and 740
  • Property taxes
  • Homeowner’s insurance
  • 3 percent purchase costs
  • 8 percent selling costs (because that’s how owners realize the gains)
  • Annual maintenance costs equal to 1 percent of the home’s value
  • For condos, 1.2 percent a year in HOA fees
  • Home appreciation forecasts
  • Federal tax deductions

For renting, we assume:

  • A deposit equal to one month’s rent
  • Rent payments
  • Renter’s insurance
  • 5 percent annual investment gains on money that would have been used as a down payment or gone towards other homeowner expenses the renter avoids

In the Denver metro area, 2018 marked the first time the average price of a single family home crossed the $500,000 threshold. Meanwhile the average rent for a single family home is over $2,000 a month.

Money may not be your only consideration. Zillow says 40 percent of renters value their proximity to work. If you don’t know where you’ll be working in the next few years, you may want to avoid purchasing a home that fixes you to a certain part of the metro area.

However buying may be a better option than renting if you own pets. Only about half of the single family homes currently listed for rent in the Denver metro allow animals.