Proprietary Data Insights
Top Residential REIT Searches This Month
Loyal To The Urban Lifestyle
Earlier this year, Moody’s Analytics put out a study comparing apartment development and demand in and out of the central business districts (CBDs) of major metropolitan areas. Specifically, Moody’s wanted to see if young people who left the urban core when the pandemic started have since returned.
Here’s what they concluded:
In the long run, we expect the demand to remain higher in the CBD apartment markets than their respective non-CBD counterparts… We will choose to characterize this as residents remaining loyal to the urban lifestyle. We find evidence that in larger metros, net absorption between CBD and non-CBD submarkets tend to exhibit larger bifurcations – relative to the rest of the nation… Construction will likely continue to be more active in the CBD areas – and our forecasts suggest that inventory will grow about two times faster relative to non-CBD markets.
This apparent demand for center city urban apartment living bodes well for the apartment REITs – Essex Property Trust (ESS), Equity Residential (EQR), and AvalonBay Communities (AVB) – The Juice frequently writes about.
All three stocks have rallied hard over the last three months.
Source: Google Finance
One other factor that makes them attractive: The increasingly absurd amount of money required to be able to afford a home in most big and medium size US cities. Scroll with us for the gory details.
You’re Young. You Have Money. Rent Or Own?
So, we didn’t pick New York, San Francisco, or Los Angeles. We went middle of the road and started with Denver, Colorado. And we went with a 4.0%, 30-year mortgage interest rate. This will help us highlight just how much of an impact rising rates have on the cost of home ownership.
It takes a salary of almost $122,000 to afford the median price home in Denver, Colorado, based on the standard of dedicating roughly 30% of your income to your housing payment. This equates to a monthly payment of $2,844. Up the interest rate to 5% and you’re looking at $3,077 a month.
But here’s the kicker.
Put 10% down instead of 20% and, of course, your monthly payment increases, making the salary required to own a median priced home in Denver just north of $143,500.
Think about that down payment again. But, as a chunk of cash you must come up with. At 20% down, you’ll need to save $132,400. At 10% down, you’ll need a still formidable $66,220.
The average rent for an apartment across Denver: $1,994.
The average rent for an apartment in Downtown Denver: $2,462.
Not for the faint of heart, but a relative bargain when you consider property tax, maintenance, and potential HOA fees alongside the monthly and down payments required to become a homeowner.
For comparison sake, here are the least expensive cities alongside the national average:
And the most expensive:
Denver came after New York City, followed by Austin, DC, Portland, Riverside/San Bernardino, Sacramento, Miami, and Salt Lake City, for a total 14 places where you need to make more than $100,000 to afford a median priced home.
The Bottom Line: What do you value, from a personal financial perspective?
That feeling of being handed the keys to your new home. A home you think will appreciate considerably in value over the years.
Or keeping that down payment in the bank for cash security. Or maybe investing it in stocks. Not a bad starting point that you can add to each month with the money you’re saving by renting an apartment rather than owning a home.
Apologies if we got too personal.
But this is what it comes down to. We like to think we make rational choices with our money. However, we’re not always objective. And this is okay.
Sometimes we follow our passion. If you don’t have unlimited funds, you might have to choose between your passion for home ownership and your passion for saving and investing, particularly in the present expensive environment.
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