Housing affordability has become one of the key questions on the minds of buyers and sellers in virtually every price range. As a percentage of household income, paying for your home, whether you rent or own, will take a bite out of your cash flow. For most families, the amount typically ranges from 20% to 40%. The advantage appreciated by most renters is the flexibility a lease can provide, especially for those that prefer moving every couple of years.
The financial benefit of owning, particularly if you can see yourself staying in your home for at least 3-5 years, is simply that you are now building wealth. Whether you are saving for the down payment on your first home or perhaps looking at your current equity build-up to purchase a second or third home; it may be prudent to view this current market as the perfect storm, with affordability in mind.
Today you can get a 30-year fixed-rate mortgage for 3.5%. That would make a principal and interest payment of $2,245/mo. on a $500,000 home loan, add in $300-$500 for taxes and insurance (and/or HOA fees), and your payment is pretty attractive. Between your payment staying steady, tax advantages, and potential equity appreciation, the investment benefits are clear.
The good news for buyers, and sellers who would like to be buyers, is that although prices are still increasing, they are doing so at a more moderate pace. Year-to-date, our nation is seeing prices up 4% over last year, while Denver is going to be in the +/-5% range, which is more than double the rate of inflation. Home prices are up in 91% of the metro markets across the country, according to NAR (National Association of Realtors). This is due, in part, to new home construction not being strong enough to meet population growth. New construction is actually slightly down through the first part of 2019.
According to statistics from REcolorado, reported by LIV Sotheby International Realty, existing home markets are getting some relief while enjoying year-to-date growing inventory of 6.5% higher than at this time last year. This also helps houses fly off the shelves at a slower pace, taking an average of 32 days to sell as opposed to 24 days, last year. That said, almost half the new houses that come on the market are selling in eight days. This demonstrates how there is still genuine interest and demand for homes that are priced right (competitively), look good, and are primarily in the mid-price ranges ($350,000- $650,000). The number of sales was up 4% over July of last year with 5,732 sold homes, with the Denver market carrying an average of 1.8 months’ worth of inventory. I am regularly asked, “Where are the buyers coming from?” The answer according to (sometimes right) Zillow is that, depending on price range, 42% are millennials, 26% Gen X, and baby boomers (70% of the nation’s wealth) are 24% of the buying population. While 35% are either divorced, unmarried, separated or widowed and 65% are married. Just to be fair, today’s sellers are comprised of 25% baby boomers, 28% Gen X, 31% millennials (moving up already), and 13% are deemed “the silent generation.”
As of June 2019, median home prices are 80% higher in Denver than 2007 pre-recession peaks. But how does Denver compare to the highest-priced cities in the country? San Jose/Santa Clara areas are No. 1 with an average price of $1,330,000; followed by San Francisco/Oakland at a mere $1,050,000. Anaheim/Irvine slides into 3rd place at $835,000, Honolulu is $785,000 and San Diego is 5th at $635, 000. Denver isn’t inexpensive but can be more competitive, at around $505,000.
It might be nice to remind ourselves why we live in Denver. How about over 300 days of sunshine, winters that average 45 degrees with little humidity, close-by mountains and resorts (11 world-class ski resorts within 100 miles), delightful summers averaging in the 80’s, all four major sports teams, the second most educated population in the U.S.A., top five cities to retire, median household income is 25.8% higher than nationally, over 200 parks in the city, we have become a foodie town, and you can happily shop ‘till you drop. And people are very nice here!