Denver’s Housing Affordability Index Drops 10% in a Year

By Robert Davis

The March 2021 monthly market report from the Colorado Association of Realtors (CAR) shows that Denver’s affordability index has dropped 10% since March 2020, marking its most significant dip in the last four years.  

CAR’s affordability index measures affordability by assigning a composite score for a variety of factors, namely the current interest rates, median sales price, as well as an area’s median income (AMI). 

The index ranks areas based on the household income needed to qualify for a median-priced home. In January 2012, Denver’s median household income was 290% of what was needed to afford a townhome, and 150% of what was needed for a single-family home. 

Over the next eight-plus years, that parentage has tumbled to 70% for single-family homes and 78% of the overall market. 

Matthew Leprino, a Denver metro area real estate agent, said in a statement that several factors are impacting the affordability of housing in the city. Two primary factors include skyrocketing median price appreciation and historic-low supply. 

 “As COVID-life veterans by now, we all can understand how demand for more space which now encompasses office life, homeschooling, and new demands on a home. The demand for a freestanding home does fall in line with that evolution and certainly doesn’t look to decrease anytime soon,” he said. 

While Denver’s available listings have increased steadily over the past four months, it has not kept pace with demand. In March, 4,941 properties were listed on the multiple listing service, while 4,337 were sold, and another 5,003 were under contract, according to CAR data. 

Amid the supply shortage, the median sale price in Denver climbed to $630,000, a 20% appreciation year-over-year. Meanwhile, the average sale price peaked at $735,000, representing a 25% climb over the same time frame 

Fannie Mae listed these market conditions as factors for the 5.2% spike in home-seller confidence in March, according to the agency’s Home Purchase Sentiment Index.  

However, not all analysts see roses in this picture. The Federal Reserve Bank of New York issued a report that found first-time homebuyers have not been able to reap the benefits of low-interest-rate mortgages, as repeat buyers cashed in on nearly a decade of appreciation and flooded the market during the pandemic. 

Similarly, local homebuilders struggled to keep their heads above water as the prices of wood, PVC, and steel all nearly tripled in one year. Combined with Denver’s scheduled minimum wage increase, the local market doesn’t support projects that sell near median income levels. 

These issues aren’t contained in the Denver metro area either. Statewide active inventory is at 30% capacity while single-family median pricing has risen nearly 9% since January. 

State lawmakers have introduced legislation to address these issues and help get people currently sleeping rough into shelters or alternative housing solutions. 

Senate Bill 21-242 gives local governments $5 million in grants to provide people shelter for experiencing homelessness in underutilized hotels, motels, and other similar property types. 

Similarly, House Bill 21-1271  would provide local agencies with $13 million to build affordable housing and alternative housing options that support the needs of their community. 

“Everyone wants to know when the frenzy is going to end. Is this the new normal for our market? Most professionals predict the market will remain in this state through the end of this year based on current demand, low interest rates, and ridiculously low inventory levels. We are seeing more sellers entering the market, but not enough to curb the demand, which far outpaces the supply,” Durango-area Real Estate Agent Jarrod Nixon said. 

Denver VOICE