Affordability Index Retrospect

Index Over Time Shows a Complex Story Behind Affordability Issues in Colorado

By Matthew Leprino

You aren’t wrong. Living in Colorado isn’t exactly ‘affordable’ these days. Our incredible State has been evolving for some time now and the potency of that change is no clearer than in the lack of affordability of our real estate market. A relatively new statistic suggests that a growing amount of our neighbors are paying mortgages (and rents) far beyond what would be considered ‘affordable’. Anecdotally this is not particularly surprising, though the data we use to track this unaffordability could be. According to the Colorado Association of REALTORS®’ (CAR’s) Affordability Index, the Metro Region crossed over from being statistically ‘affordable’ between February and March of 2016, and Statewide during the same period in 2017. What’s more: the gap between statewide affordability and that of the Metro is also narrowing, suggesting that Denver’s surge isn’t alone in the collective statewide demographic shift.

CAR defines its Index as a measure of how affordable a region’s housing is to its consumers, a higher number equaling greater affordability. The Index considers current interest rates, median sales price, as well as median income to compile the score and tracks the number both by Denver Metro as well as Statewide by county. While many in the Denver Metro area point to prices as the sole source of declining affordability, the Index suggests that other factors are indeed playing a pivotal role.

The median price, specifically in the Metro, has increased substantially over the last couple of years – between 7 and 14 percent year-over-year, according to CAR. When we look at that number next to wage growth, the Census ACS 1-Year Survey suggests median income grew only 6 percent from 2014 to 2016 – far less than a single year’s worth of median price appreciation. While this data shows that housing prices are growing at least 3 times as fast as income, we begin to see the clearer picture, which helps us understand our indexes. The Denver Metro area’s affordability index sits at a cool 73 this month – slightly better Statewide at 81 – showing that overall, and statistically speaking, the average Jane or John does not make enough to live in the City or perhaps even the averaged State.

When the Index first started being tracked in February of 2014, The Metro Region was scored at a 121 – meaning the average person made 21 more points than was necessary to be approved for a mortgage for the average home. Statewide, the number was 134. The curious change during that time period is that while statewide vs. the Metro has always shown a gap between them, that gap is shrinking. Between Februarys of 2014 and 2016, the difference was, on average, 14.25 points per month, whereas the last 12 months were only slightly above 9. This closing gap means that while statewide prices are going up, either the Metro Region is appreciating slower than before or the rest of the State faster, depending on your perspective or prediction.

Colorado is mid-change – there is simply no denying it. Which particular facet in the driver’s seat remains to be seen, but what is also occurring in the background is progress. Though there are strains, which are certainly more potent at various levels, our infrastructure will improve because of it. These times force more innovation and development for the underserved. Needs for more efficient transportation, better solutions to affordable housing, and a better way of life are understood by our resilient business community and you can bet your home’s appreciation that they will respond. Denver and the whole of Colorado is not cheap right now. We are paying the debts of maturing from a dusty town to modern metropolis in a relatively short amount of time. Stick with it though, there are signs of a cooling in the residential real estate forecast. While it may take a little bit for wages to catch up with home prices, we will get there…it’s just going to cost a little more while we do.

Matthew Leprino is Broker/Owner of Leprino Home, Inc. and spokesperson for the Colorado Association of Realtors. He can be reached at: 303.482.1299 or matthew@leprinohome.com

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