Market Update, March 30, 2023

I looked at homes for sale this morning and thought, “homes are priced much better than they were a year ago. These homes priced in the $500s would have sold for over $600,000 a year ago. So it must be a better time to be a buyer.”

But is it?

I decided to see what the data could tell us about affordability and whether now is a better time to be a buyer.

I looked at the 327 closings that took place yesterday and the day before and compared those prices with the prices of homes sold when they peaked in April 2022.

The median price for homes sold yesterday and the day before was $560,000. The average home sold for 98% of its asking price.

Last April, the median sold price was $600,000. Homes were selling for an average of 106% of the asking price. The market was competitive! 

Prices are lower now! The home that sold yesterday for $560,000 could have sold for $600,000 last April.

But prices are just one piece of the affordability puzzle. 

Interest rates are another critical part of affordability.

Buyers who closed in the past few days probably locked their interest rate about a month ago. So a typical buyer may have gotten an interest rate of 6.7% (rates are lower today). 

If we assume a 10% down payment, that the buyer will pay a monthly HOA fee, and we include taxes and insurance, the monthly payment on a home sold yesterday could be about $4,344.

Last April, a buyer could have locked an interest rate of 4.42%. So buying that $600,000 home last April would have been less expensive than purchasing the $560,000 home today. Monthly payments could have been about $3,866.

In other words, monthly payments for the same median-priced home would be $478 higher today than last April.

The last piece of the affordability puzzle is income. 

If your income increased in the past year, the increase in monthly payments might not seem like much. To you, that median-priced home may seem more affordable now than in the past. 

Just now – and I mean JUST NOW as I am writing this – ATTOM™ Data Solutions released their home affordability index, which includes wage data for some metro area counties. In Boulder, the median wage rose 7.5% in a year. In Denver, wages rose 7.7%, while wages rose 7.5% in Douglas County. Increases were smaller in Jefferson and Arapahoe counties – 6.9% and 6.7%, respectively.

So, the monthly payment for a median-priced home is up about 12%, while wages increased less than that. Therefore, homes aren’t as affordable now as they were when prices were higher last year. 

According to ATTOM, trends are similar nationwide. They say, “median-priced single-family homes and condos are less affordable in the first quarter of 2023 compared to historical averages in 94 percent of counties across the nation with enough data to analyze – far above the 62 percent of counties that were historically less affordable in the first quarter of 2022.” 

In many parts of the metro area – and the country – it takes significantly more than 30% of the median income to buy the median-priced home. In Denver, for example, ATTOM estimates it takes about 33% of the median income to purchase the median-priced home. In Boulder, it takes 49%; in Jefferson, it takes 47%; in Douglas, it takes 51%; and in Adams County, it takes 44%.

Buyers are susceptible to interest rates, which have been fluctuating. If rates get closer to 6%, we’re likely to see a significant influx of buyers.