Market Update, May 11, 2023

Affordability is top of mind for buyers right now. Fluctuating interest rates, rising home prices, and increased valuations that have led to higher property taxes all weigh on buyers’ minds when they consider purchasing a home.

The Guardian published an excellent article titled “How finding a home in America became so absurdly expensive.” Historically, home prices have been considered affordable when the median home price in an area was about 2.6 times the median income. However, in Denver, in 2022, the median home price was 7.1 times the median income. In Boulder, the median home cost 8.7 times more than the median income.

How did home prices get so high?

Prices have risen for complex reasons, but The Guardian explains high prices the same way we describe the situation to our clients. First, there aren’t enough homes for sale to satisfy demand. Construction is down, and there is a need for more homes. Millennials want to buy homes, are entering their prime home-buying years, and are the largest generation alive. 

Investors have also been scooping up many homes, putting upward pressure on prices. They bought 18.4% of all homes sold in the fourth quarter of last year. 

There’s some disagreement about the extent of the problem, but many analysts say baby boomers are aging in place and not selling their homes, which puts a strain on the market and limits buyers’ choices.

Young and first-time home buyers suffer the most, primarily because they don’t have the down payment to purchase a home and often don’t earn enough to cover the monthly payments and maintenance costs of owning a home. As a result, they’re renting with roommates and moving in with their parents.

What can buyers do?

Despite the difficulties, there are ways to make home-buying less expensive. For example, Colorado’s CHFA program offers down-payment assistance through grants that don’t need to be paid back. In addition, Front Range Heroes provides rebates for homebuyers who are healthcare workers, veterans and active-duty military members, educators, and first responders. We also recommend that borrowers talk to multiple mortgage lenders to find the most affordable loan possible.

Buyers should do everything possible to boost their credit scores before purchasing, too, which results in a better interest rate.