Housing Affordability Historically Affordable Despite Price Increases

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Housing Historically Affordable

Housing Historically Affordable

Metro Denver residential real estate market stats have been finalized for May and are consistent with the pattern we’ve experienced since 2012. Housing affordability is historically affordable despite price increases…

You can see the actual dollars and percentages down to two decimal places in the table below, but the big picture is as follows for this May versus May of 2016:

  • Single family home prices are up by just over 7%
  • Multi-family home prices are up by just under 6%
  • The number of properties changing hands increased by 10%
  • The inventory of homes available for purchase rose by almost 17%

A prolonged run up in home values always raises concerns about affordability. Can anyone afford to buy?

There are many measures of affordability. We reviewed one recently that is specific to metro Denver. Let’s call it the Metro Denver Home Affordability Index (MDHAI, for short).

Over the last 46 years, the average MADHI is 100. The index is based on a formula that considers average sale price, interest rates and average personal and household income for any given year and determines how much of a person’s annual income is required to buy a home.

If the index in a given year is above 100, it means that people are spending more of their annual income on their home loan than has been typical over the last 46 years. An index below 100 indicates that folks are spending less of their income on housing compared to the historical average.

At the moment, the index stands at 86.54. This means that home buyers in the metro area are paying a smaller percentage of their annual income on a house payment right now than has been typical over almost the last four and a half decades – almost 15% less!

The MDHAI was consistently in the 90 to 100 range from 1988 through 2007. The index was above 100 from 1977 through 1987 and spiked at almost 200 in 1981. The only times over the last 46 years when housing was more affordable than today relative to household income were a few years in the early 1970s and from 2008 to 2013.

While prices continue to climb, affordability is not out of whack with historic norms.

Summary of several market parameters for May 2017 compared to May of 2016:

Item May 2017 May 2016 Change
Single Family (SF) Average Sale Price $481,983 $450,109 UP 7.08%
Multi-Family (MF) Average Sale Price $314,401 $297,362 UP 5.73%
Number of Properties Closed 5,317 4,831 UP 10.06%
Number of Properties Going Under Contract 5,753 5,893 DOWN 2.38%
Number Properties Available at End of Month 5,830 4,997 UP 16.67%
SF + MF 12-Month Rolling Average Sale Price* $407,247 $373,111 UP 9.15%
SF + MF 12-Month Rolling Average Number of Properties Closed* 53,156 52,069 UP 2.09%

*12-month periods from April 1, 2016 ending March 31, 2017 and April 1, 2015 ending March 31, 2016, respectively.

Data analyzed by CHR and based in whole or in part on info from REColorado®, Inc. (RECI), RECI and CHR do not guarantee, and are not responsible for, its accuracy. RECI content may not reflect all real estate activity in the market. Not all properties were listed or sold by CHR. The stats above are for sales activity in Adams, Arapahoe, Broomfield, Denver, Douglas, Elbert and Jefferson counties. It includes home sales handled by real estate agents though Metrolist/REColorado®, Inc., the MLS system serving the metro Denver area.

The stats above are for sales activity in Adams, Arapahoe, Broomfield, Denver, Douglas, Elbert and Jefferson counties. It includes home sales handled by real estate agents though Metrolist/REColorado®, Inc., the MLS system serving the metro Denver area.

You can see a more extensive breakout between the single family and multi-family segments of the market by clicking on the links at the end of this post. Be sure to take a peek.

If you like the look of those reports, we can produce one for you that is specific to your zip code and property type. The market is not uniform. Your part of town may be doing better or worse than the metro-wide averages.

 

Single Family Homes May 2017

Multi-Family Homes May 2017