Denver remains a top destination for millennials

Denver remains a magnet for millennials, but a lack of affordable homes could prevent many of them from sticking around for the long haul.

Out of 100 metros examined, Denver continues to rank in the top 10 for its ability to attract and retain millennials, the generation born between 1980 and 1998, according to a study from the National Association of Realtors.

But the rate at which young adults, especially the new arrivals, can purchase a home given the wages available to them is among the lowest in the country, according to a study from the National Association of Realtors.

“The Denver area is very attractive to millennials, but Denver faces affordability challenges,” said Nadia Evangelou, a research economist at NAR. “Only 10 percent of recent millennial movers bought a home in the area.”

Across the 100 metros that NAR studied, millennials pulled down a median wage of $55,609, but in Denver they earned closer to $69,300. But metro Denver’s advantage is much smaller for those for those relocating here, with a median wage of $55,600 versus $52,765 nationally.

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Metro Denver’s problem is that housing supply hasn’t kept up with all the new people who have moved here, pushing up home prices at some of the highest rates in the country and far ahead of gains in income.

Millennials moving here earn a median income that is high enough to afford only 6 percent of the homes that were listed in March, according to the NAR. Only Seattle, at 5 percent affordability, ranked worse among the hot spots.

Nationally, the affordability ratio is closer to 23 percent for millennials relocating to a major metro. In Oklahoma City, the most affordable of the NAR millennial magnets, 30 percent of the homes were affordable to young buyers relocating there.

Evangelou notes that there are places where millennials flock to, like the Bay Area, but where they don’t stay because they can’t afford to live. Like migratory birds, they rotate in and out, as the population who can afford to live there long-term ages.

“Younger and older millennials have a strong desire to own a home. They pick areas where they can stay and raise a family. They need to establish themselves somewhere,” Evangelou said.

An abundance of good jobs paying a good wage, not to mention having lots of other young people to hang out with, are important to young adults on the move, she said. But the ability to buy a home and raise a family are what, in the end, bond them to a place.

Denver doesn’t make it easy

Kyle and Dani LeBrasse, both 29, were raised in Colorado, attended Colorado State University and moved to Houston to pursue their careers after college.

But after five years in Houston, the couple wanted to leave renting behind and own their own home. They were torn between putting down roots in Texas or returning to Colorado, where they could be closer to family and the mountains.

“For us, moving back here was difficult,” said Dani. “We interviewed at a lot of places. No matter where we went, we were going to have to take a pay cut.”

They suspect that was because so many people their age were competing for jobs, pushing down wages compared to what employers were willing to pay in Houston, despite its lower cost of living. Making matters worse, they also found “astronomically” higher rents for the kind of centrally-located apartments that Houston offered, Kyle said.

Denver’s economy not only paid them less for comparable work but demanded that they pay up to live there. That is hardly a winning formula to attract people their age, they said.

After job hunting for about 18 months, they both conceded and took a hit in pay so they could move to Denver. To get more bang for their monthly payment, they rented a home in Lowry, a place to park while they pursued a search for a home to buy.

The high price tags on older homes with tiny square footage in established neighborhoods was another source of frustration, until they lucked out. Their landlord was willing to sell them the newer house they were renting for $445,000.

“To get into Lowry for under $500,000 is unheard of. Maybe you can get a condo for that, but not a free-standing house,” Kyle said.

The couple paid a price that was slightly above the median sales price for homes in metro Denver, and in a sought after neighborhood. That said, the median price of a home sold in Houston, the city they left behind, was at $222,000 in January, or half of what they paid.

Migration and economic vitality

Young adults, on the hunt for new careers and new horizons, are much more mobile than other parts of the population. Millennials represent a quarter of the U.S. population but 54 percent of the people who relocated from another state to one of the nation’s 100 largest metros, according to NAR.

As past generations did when starting out, today’s young adults favor some destinations more than others. In metro Denver, they account for nearly three in 10 residents and about two out of three of those transplants, a key reason Denver made the list.

Coming out of the recession, the question of where to locate was mostly about the availability of jobs and quality of life. Cities like Denver, Seattle and Austin, Texas, proved big draws. But as home prices have risen and jobs become more plentiful, affordability concerns have weighed heavier.

That has caused some unexpected names to start showing up on the list of millennial hot spots, places like Salt Lake City, Omaha, Oklahoma City, Durham, N.C., and El Paso, Texas. Yes, Omaha.

High housing costs in the Los Angeles Basin have also pushed Bakersfield onto the NAR’s top 10 list, the only California city to make the cut.

When it comes to places where millennials are the highest share of newcomers, two locations stand out — Madison, Wis., at 75 percent and Grand Rapids, Mich., at 73 percent.

In Madison, incoming millennials pull down a median income of $68,500, nearly $13,000 higher than Denver. And it’s high enough to afford 23 percent of the homes on the market.

“This housing market is expensive in Denver, and millennials know it is way more expensive than a lot of the other metro areas,” said Pam Schock, an agent with HomeSmart Realty Group in the Denver Tech Center.

Schock, who helped Kyle and Dani LeBrasse buy their home, said sticker shock is causing some millennial renters to pick up and leave. But she also has a young couple relocating from San Francisco who were blown away by what $500,000 would buy them in Fort Collins.

She had another young couple coming up from Phoenix who had the opposite reaction. But they were willing to take the financial hit for a better quality of life for themselves and the family they wanted to have.

A slowing market has boosted the inventory of homes available and eased pressure on buyers, Schock said.

But supply shortages are likely to remain chronic given the demographic trends. A separate study from Zillow predicts the pressure on the entry-level home market will only get more intense in the years ahead unless builders find a way to ramp up production.

In metro Denver, the median age for a first-time buyer is 33 years old, compared to 34 years old nationally. About 456,433 Denver area residents will reach that median age to buy a home over the next decade, Zillow forecasts.

That seems like a lot, but it is only 1.8 percent larger than the wave seen in the previous decade. In Boston and San Diego, the coming millennial buyer surge is predicted to be nearly 20 percent larger than the prior one.

That huge wave this decade, combined with a builder focus on more expensive homes, could explain why starter-home prices rose so much since 2012. And while more builders have pivoted to townhomes and other more affordable products, the deficit remains huge.

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“The potential first-time buyer bulge, without inventory to meet it, suggests that the typical age of first-time buyers will continue to be pushed further and further out,” said Skylar Olsen, director of economic research at Zillow, in her report.

Single-family housing permits have averaged around 22,000 a year statewide the past five years. Although the expectation was for single-family permits to rise another 10 percent this year, they were down 20 percent in the first quarter, notes Broomfield economist Gary Horvath.

Even if every new home built targeted the wave of first-time buyers, which won’t happen, the supply would likely still fall short. That will leave more millennials stuck renting and hoping more Baby Boomers will put their empty nests on the market.

“The rate of single-family construction is still behind the pace we experienced in the 1990s, and without an increase in truly new supply, would-be first-time buyers will instead persist in the rental market,” Olsen said.

That, or they will increasingly choose to move to those cities where they can afford to own a home, Evangelou adds.