Denver has experienced yet another 12 month cycle where median prices have increased between 7 & 9% over the previous year. Some folks in Denver will tout their analysis yet most others could be missing as much as 17% of the actual closed data when they report. And it really does not matter as it is only an indication of the market, not what it is like in your neighborhood. That can only be determined with a deep dive into your local statistics including sales and under contracts. But think about this as you contemplate the value of your home…
When comparing the cost of owning a home to renting, there is more than the difference in house payment against the rent currently being paid. It very well could be lower than the rent but when you consider the other benefits, owning could be much lower than renting.
Each mortgage payment has an amount that is used to pay down the principal which is building equity for the owner. Similarly, the home appreciates over time which also benefits the owner by increasing their equity.
There are additional expenses for owning a home that renters don’t have like repairs and possibly, a homeowner’s association. To get a clear picture, look at the following example of a $300,000 home with a 3.5% down payment on a 4.5%, 30-year mortgage.
The total payment is $2,264 including principal, interest, property taxes, property and mortgage insurance. However, when you consider the monthly principal reduction, appreciation, maintenance and HOA, the net cost of housing is $1,218. It costs $1,282 more to rent at $2,500 a month than to own. In a year’s time, it would cost $15,000 more to rent than to own which is more than the down payment and closing costs to buy the home.
With normal amortization and 3% annual appreciation, the $10,500 down payment in this example turns into $112,00 in equity in seven years. Check out your own numbers using the Rent vs. Own or call me at (303) 880-5585. Owning a home makes sense and can be one of the best investments a person will ever make.
Again, as you consider the chart above 7.6% appreciation would be more appropriate for last year in Denver. WOW! Contact me for more info.