Home ownership helps families build wealth that they can pass to the next generation or tap into for education, retirement, and other important expenses.

So when more people are borrowing to buy homes, economists consider that a good thing. Mortgage debt grew at an annual rate of 3.1% in the third quarter of 2018 according to the latest Flow of Funds report from the US Federal Reserve.

Homeowners also spend money on things to maintain and improve their homes: paint, shingles, flooring, furniture, and so on, which can be good for the economy.

But a November 30, 2018, article published by MarketWatch indicates that Americans as a whole don’t have enough mortgage debt, and that’s a bad thing. Why? Because it could mean that not everyone who’d like to buy a home has been successful.

Economic Barriers to Home Ownership

While home equity has largely recovered for those who have managed to stay in their homes or buy since the 2008 housing crisis, various factors have shut out would-be homeowners from the market. Buyers whose purchase is contingent on getting a mortgage can’t compete with those who can afford to pay cash: all-cash buyers can close faster and be generally easier to accommodate. And some experts say tight lending guidelines have kept some borrowers out since the housing crisis (though other experts say that’s not true).

Low housing inventory has been a problem in some communities—Denver is certainly one of them. So has a lack of affordable, entry-level homes. Sometimes, those homes don’t exist because developers can’t build fast enough to meet the demand. Other times, they don’t exist because people who already own property in an area don’t want affordable housing added to their communities.

Why not? There’s the age-old “not in my backyard” fear that adding something perceived to be of lower value to the community could bring with it negative things like crime, litter, and graffiti that would ultimately lead to lower property values. For example, suburban homeowners with school-aged children living in quiet neighborhoods might not want their community to become popular with young singles (that’s one of the nicer fears, of course).

What this all boils down to is a concern that the gap between the haves and have nots of the housing market is growing, because while people who already own homes are seeing their equity increase, people who don’t yet own homes (but would like to) can’t get them, as low levels of mortgage debt perhaps indicate.

Housing Affordability in Denver

How has this scenario played out in Denver? Our city does have an inclusionary housing ordinance that’s designed to make sure at least 10 percent of the units in developments with 30 or more for-sale units are affordable. A 2014 revision to the ordinance tried to make it easier for developers to build more affordable housing. Affordable means that someone earning 95 percent of the median area income (or as little as 50 percent, depending on the type of building) would be able to live there.

Since 2005, there’s been a steep drop-off in the number of affordable homes constructed under the ordinance. In 2015, just 22 affordable homes were constructed under it, Denverite’s Megan Arellano reports. Developers can get out of the ordinance by paying a fee (which often happens in higher-end neighborhoods, according to the article) or by constructing 29 units or fewer in a development. But there are also rebates and incentives for developers to build affordable housing. The result can be a greater quantity of affordable housing on the outskirts of Denver than in the center.

In the Denver metro area, home price appreciation outpaced income growth according to a “Health of the Housing Market” survey published by insurer Nationwide last June. Denver ranked fifth among major metropolitan areas for this statistic. Our city exemplifies a trend in declining affordability that the survey found for most of the major metropolitan areas it examined.

Denver Home Prices vs. Income

If you want to buy a median-priced home in Denver, which costs about $450,000, using a 30-year, fixed-rate mortgage at 4.69%, you’ll need an annual income of about $91,000 if you put down 20% and about $105,000 if you put down 10%, according to mortgage website HSH.com. These figures assume a monthly mortgage payment of 28% of income, but some lenders will allow a higher payment.

Denver’s median household income of about $72,000, however, can’t buy Denver’s median priced homes. Other cities that have high salary requirements, such as Washington, DC, don’t show this discrepancy. The gap is tremendous in other cities, such as San Jose, where the median household income tops $250,000 but the median home costs $1.3 million.

The $91,000 salary requirement represents an increase of almost 15% year-over-year and is the ninth highest salary requirement among the 50 large metropolitan areas in the survey.  While Denver’s median home price only went up by 7.65%, interest rate increases have made home ownership less affordable.

How We Can Help You Make Home Buying a Reality

While there may be some systematic stop-gaps on the road to home ownership, as an individual there are tools on your side. Aptly put by Broker Associate Corey O’Flanagan, “Usaj Realty has helped buyers from all economic circumstances and our experienced brokers have the knowledge and expertise to help. The most important thing for buyers who are struggling to find something in this market, is to find a great lender who can offer a variety of loan packages, keep their credit score up, and most importantly, stay patient!”

Homes come in a wide variety of sizes, locations, and prices. Different types of loans are available for homebuyers in different circumstances, too. Working with a trusted real estate professional can help you make the process smoother. Your Usaj Realty broker will:

• Assist you in mapping out the best timeline for your purchase based on your goals and needs
• Introduce you to a professional mortgage lender who can help you discover all your financing options
• Provide details regarding market trends and pricing (e.g. best time of year to buy, neighborhood specific market stats, and more)
• Set you up on immediate email alerts for properties that match your criteria
• Write a strong offer and negotiate the terms on your behalf when you find a home you want to purchase
• Walk you through each step of the process thoroughly and comprehensively

If home ownership is a dream of yours, contact us at Usaj Realty and we’ll do our best to make that dream come true!