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There’s No Safety in Renting

Stop boiling frogs; there’s NO safety in renting!

You know the story of the boiling frog, don’t you?  If you put a frog into boiling water, it will jump out immediately, but.. if you put that frog into tepid water which is then brought to a boil slowly, the frog will not perceive the danger and will be cooked to death.  Wow, that was harsh… but here is where it get’s real.  Over the past 11 years, rent has been going up slowly.  To rent or not to rent, that is the question.  The answer has been indifference as the pain of renting did not hurt too much, but stats show there’s no safety in renting.  

denver metro apartment vacancy and rent survey

The Apartment Association of Metro Denver put out their most recent quarterly report showing the cost to rent in Denver today.  And it just started hurting a little more.  The average rent across the six Denver counties hiked 6.5% from the first quarter 2021.  Wait, what?  Yep.. 6.5% in three months.. that’s the largest quarterly dollar increase ever recorded.  Rent went up 9% year over year landing at an average $1651.  Meanwhile vacancy rates among the six counties dropped to 3.7% with only 2,495 new units brought to market and 10,298 new renters looking for them.

How is there safety in renting with stats like these?

  • Average rents in Boulder/Broomfield counties remained the highest at $1,952, with Douglas County not far behind at $1,797.
  • The vacancy rate in Douglas County was the lowest of all the counties surveyed at 2.2%.
  • The “hottest sub-markets” included Denver-City Park with almost no vacancy at .7%, Longmont at 1% and Aurora-North at 1.7%.

There is a quote by the Apartment Association stating “When we compare the rental market to the cost to buy a home which has increased by over 30%, respectively, renting an apartment remains a good economical choice for many Coloradans.”  The 30% quoted was the average year over year closed home price increase for detached homes during the month of June.  We know that the average closed price movement is a real number but it’s not appreciation… it highlights that a greater number of sales closed at higher prices than lower, indicating more homes were available at the higher price points and more buyers moving in and around Denver were willing to spend more.  True Denver appreciation for June was 18.4%.. still high, just not quite the 30% used to highlight the “good economical choice”.

Please forgive me as I get a little excited about this topic.  The Apartment Association is correct and we need affordable rent solutions because not everyone will or can buy.  In fact approximately 37% of Americans will continue to rent because they will… they are afraid of commitment, have legal or credit issues, or like the “freedom” rent gives them.  But to compare the choice as a good one verses owning hurts the educator in me.  If I could, I would help everyone I know buy a home, then another one and then another one, as the safety in renting is dwindling.  It is the path to financial independence, not dependence on a landlord and rising rents.

But the Stock Market is doing so well

Here’s another reason someone might have pause to buy right now… because they do not want to take money out of the stock market or crypto currency… because it’s doing so well. And it is. If you put money in at the pandemic bottom, you could have seen a rate of return of 84%… in only 16 months.  It’s even up 19.8% since pre-covid.  ​

The stock market and the real estate market tend to travel together.  This years Fed liquidity, stimulus packages, increased savings, consumer confidence, heightened demand, and limited supply have all given us incredible returns in both the stock market (above) and real estate (below).  So to see 84% gain in the stock market, it is not a surprise to see 18.4% in real estate.  

We can’t reverse time, but let’s pretend for a moment we were talking with a young renter a year ago; who just received a $28,200 gift from Mom and Dad and $1800 in stimulus checks. With all the excitement of Robinhood, they couldn’t help themselves but take that gift drop it into the stock market.  They picked all the right stocks and hit a gold mine.  With an 84% return, that $30,000 turned into $55,200.. for a gain of $25,200.

That renter’s little sister took my Building an Investment Empire class and knew there had to be a better way. She took her gift and stimulus check and with your help put 5% down on a $600,000 home which she started house hacking right away to her brother and his friends. Over that same year her $600,000 home appreciated 18% to $708,000 for a $108,000 gain. She was also able to raise the rents 9%, saving feverishly for that next investment.. which she will buy as a primary and house hack it as well.  I’m just sayin 😉

ny times appreciation graph

New York Times published a report earlier this year showing 38% of the equities market is owned by the top 1%.  72% is owned by the top 5%.  84% is owned by the top 10%. Meanwhile the bottom 80% have 62% of their net wealth in their primary home.  It’s why I wake up every morning excited to do what I do!

 

Nicole Rueth has been passionately advising clients on their wealth building and home financing strategies for over 17 years. Her path has been non-conventional and it is a benefit to her clients.  www.TheRuethTeam.Com.
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