Market Update, August 31, 2023

When homeowners pay less than 28% of their income toward the costs of homeownership, homes are generally considered affordable. How affordable – or unaffordable – are homes in metro Denver right now? 

To understand affordability, we first need to look at home prices. If prices are low, homes are more affordable. Last month, the median price for a home sold in the 11 counties we track was $599,450. Prices are similar right now.

In May, HUD released median family income estimates for 2023. In our area, HUD projects the median income for 2023 to be $125,500, or about $10,458 monthly. We’ll use this number to help us determine whether homes are affordable.

Low-interest rates can reduce monthly mortgage payments, making homeownership more accessible. Today, the average national interest rate on a 30-year fixed mortgage is 7.07%. We’ll use the average rate to help us determine whether homes are affordable. Fortunately, the rate has come down from its high of 7.48% just ten days ago.

What would monthly payments look like if a buyer with the median income purchases the median-priced home with the average interest rate?

Let’s assume the buyer puts a 5% down payment down, which would be $29,972.50. We want to consider all the costs of home ownership, so we’ll assume that the buyer pays $1,000 per year for insurance, $2,400 per year for taxes, and 0.5% for Private Mortgage insurance. This buyer’s monthly payment would be $4,324.67. That’s more than 41% of this buyer’s median monthly income, and this calculation doesn’t include maintenance or an HOA fee.

Many buyers with median incomes will have to purchase homes priced below the median to stay within what’s considered the affordable range.

What is considered affordable can vary based on personal financial circumstances and individual priorities. Some households might be comfortable allocating more of their income to housing costs. In contrast, others may prioritize lowering housing costs to save or invest in other areas. When considering your plans, it’s also essential to weigh the benefits of owning a home against the costs of renting.

We’ll keep an eye on prices, interest rates, and incomes to see how affordability changes in the future.

Government programs, such as first-time homebuyer assistance and affordable housing initiatives, aim to make homeownership more accessible for low- and moderate-income individuals and families. Ultimately, affordability is a balance between housing costs, income levels, and personal financial goals.