Denver Housing Affordability Index Hits All-Time Low
Photo: Scott Webb/Unsplash
By Robert Davis
Home affordability in Denver hit an all-time low between June and July, according to the latest market report by the Colorado Association of Realtors (CAR). The average wage in Denver needs to be 33% higher for an average worker to qualify for a mortgage on a median-priced home.
The index compares an area’s median wage to its median home prices and ranks areas based on whether or not a potential buyer’s income could qualify for a mortgage loan on a median-priced property. For reference, areas that score 100 points or more are considered affordable.
According to the report, metro Denver’s affordability index bottomed out at 66 and 67 points in June and July, respectively. These are the lowest recorded totals since CAR began tracking the data in 2014.
Meanwhile, some Realtors are beginning to speculate that the summer buying season may have ended early this year. Denver added more than 6,500 homes to its inventory while selling just over 5,300 in July. Last month, the market added more than 1,500 homes between its listings and sales figures as well.
At the same time, both the median and average sales prices of homes decreased between June and July. However, this should not be taken as a sign of an oncoming market reversal.
“When referring to a ‘cooling,’ it’s important to remember that the term is relative,” Matthew Leperino, a Denver-area real estate agent, said in a statement. “Although we have seen a slightly earlier than seasonal change, the year-over-year numbers remain staggering. A key example would be Denver’s median price dipping 2.2% over last month, while it increased 4.1% in the same time last year - a positive change; though still 21.5% higher overall than last July.”
Potential homebuyers are feeling the affordability squeeze statewide as well. According to CAR data, the statewide affordability index dipped to 72 and 73 points between June and July, respectively.
A map of home price changes compiled by the Federal Reserve Bank of New York shows that Colorado’s rural communities are bearing the brunt of its affordability issues. While the average home price has appreciated by 17.2% year-over-year, home prices in areas like Routt County (+10.9%), Eagle County (+4.4%), and Pueblo County (+5.4%) are all outpacing the national average. For comparison, Denver home prices increased 1.7% below the national average over the last year, the map says.
Abbey Pontius, a Realtor who works in Estes Park, said the low inventory and rising prices illustrate how fiercely competitive Colorado’s real estate market has become.
“The fierce competition and low inventory are directly affecting the average sales prices, days on market, and unfortunately, a shift in affordability that is effecting the working class,” Pontius said in a statement.
A report by Zillow indicates that the affordability squeeze could leave millions newly cost-burdened by year’s end. “Cost-burdened” in this context is defined as spending more than 30% of one’s monthly income on housing costs.
The report says mortgage payments as a percentage of income are expected to surpass 23% for the average homeowner by 2022, which would surpass the previous spending record from 2018.
Meanwhile, the median rent in several metro areas is expected to increase and account for up to 32% of the area’s average wages. Previous research from Zillow shows that homelessness often grows in an area under these circumstances.
Denver is expected to meet this criteria by the end of the year, according to the report.