Has Housing Become a Luxury Good? | Guest Post
Has Denver’s housing become a luxury good? If you grew up in Colorado, you’ve watched the massive growth in population, traffic, wealth and home prices; leaving you wondering if you can still afford where you call home. While no one likes the higher interest rates we’ve all been experiencing, the hope might have been that they would have forced home prices to come down slightly offsetting rising monthly mortgage payments and allowing more buyers access to homeownership. Yet, after seeing a brief 4.7 percent drop in Denver’s Home Price Index (HPI) from June 2022 to March 2023, home prices have bounced back recovering all but 2.5 percent of the peak at year-end. Today, based on DMAR’s March Market Trends Report, Denver’s year-to-date median home now costs 4 percent more than it did a year ago at this time.
Adding a bit of insult to injury, the Common Sense Institute just published their report showing Colorado ranks 51st in its Homebuyers Misery Index putting it dead last relative to the 49 other states and the District of Columbia. They note, declining affordability increased the number of hours a homebuyer in Colorado had to work given an average wage by an astounding 172 percent in 10 years’ time. In 2013, 42 hours of work would cover the monthly mortgage payment of a newly purchased average-priced home. In 2023, that number had now risen to a painful 114 working hours, or almost 3-weeks wages. The index also noted that Denver’s housing unit deficit in 2023 ranged between 45 and 115 thousand more units needed in order to meet its growing population-driven housing demand. Despite a strong start in 2023, new housing permits in the Denver metro area dropped significantly after May and are still only permitting at a rate of 64 percent of the shortage.
Two weeks after the Common Sense Institute’s report, U.S. News & World Report published its Hottest U.S. Housing Market report crowning Denver Metro as the hottest and most robust real estate market in the United States based on its index of demand, supply and financial health. The supporting statistics should be familiar as ones I’ve shared highlighting just how strong our local real estate market really is. A few of them include Colorado’s strong homeownership rate of 67.4 percent with the lowest national delinquency rate of only 2.0 percent; this compared to a national 65.7 percent homeownership rate with a 3.6 percent delinquency rate. Going even deeper, Denver’s foreclosure rate is a mere 0.1 percent compared to 0.4 percent nationally. More Denverites are also working as the unemployment rate sits at 3.3 percent compared to 3.7 percent nationally. This strong housing and job market, as well as Denver’s low 4.6 percent rental vacancy rate, will continue to attract investors as well as homebuyers.
Strong demand on limited supply offsets rules of affordability, by continuing to push up home prices despite higher mortgage interest rates. In fact, Denver Metro saw a strong 2 percent increase month-over-month in February on a median-priced home and a 3.3 percent increase on an average-priced home, putting our home prices 49 percent higher than the national average.
But let’s talk about supply and demand for a moment. Because this is what’s interesting. Demand isn’t actually strong. In fact, mortgage purchase applications dropped 17 percent during the month of February and while closed units increased 31 percent from January, they are still down 0.45 percent from last year and down 30 percent from pre-pandemic. Pending Home Sales are also comparatively lower than pre-pandemic. Then there’s the inventory quotient. At 5,511 active listings at February’s month end, we have 46 percent more inventory than 2023, 350 percent more inventory than 2022 and still 14 percent more inventory than 2020, right before the pandemic began. That’s not limited.
So, what your saying is with lower demand and more supply, home prices defy economic principles and continue to rise. Welcome to the Denver market.
Smart Asset lists Denver’s vibrant, 41 percent millennial-dense market as the fifth most sought-after destination. Many of those moving here earning over $200,000 a year and in line to gain their portion of the impending $72 trillion wealth transfer.
All of this to say, if you choose Denver as your home; now is the best time to buy. Honestly, 3 years ago was a pretty good time and 2012 was even more brilliant. But if you didn’t then, now is your window and we have to own that, while rates are high. Here’s why. Denver defies all odds. Nationally, the U.S. is starved for inventory, yet Denver is back to pre-pandemic levels and our home prices continue to demonstrate the impact of even low demand. As a prospective buyer, I’m looking at a 98.9 percent close to list, 2 months of inventory and 47 average days on the market as an opportunity. There are still incredible choices and deals, they just might not be exactly what you are looking for. Be open to thinking outside the box, considering a home that needs work or is just outside your circle. Explore negotiation opportunities of rate buydowns or if over 62, consider how much more you can buy with a reverse mortgage for purchase. While this market might feel limited, a little strategy and creativity can go a long way.
Plus, what this market demonstrates more than anything is Denver’s resilient housing market is an incredibly strong and financially sound investment opportunity.
Well, that’s a wrap for this month. Until next time. This is Nicole Rueth with the Rueth Team. It's my pleasure to keep you updated.
The views, opinions and positions expressed within this guest post are those of the author alone and do not necessarily represent those of the Denver Metro Association of Realtors®. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.
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