Metro Denver’s housing market is approaching a tipping point when it comes to affordability, according to a quarterly update from HSH.com, a mortgage research firm.
The median price of a home in metro Denver reached $414,000 in the fourth quarter, about $166,000 higher than the median-priced home nationally.
To qualify for a 30-year mortgage on a home at metro Denver’s median price, assuming a 20 percent down payment and an interest rate of 4.04 percent, a borrower needed income of $79,181, HSH.com calculates.
Nationally, the median income needed to buy the median priced home came in just under $55,000.
The most recent U.S. Census Bureau estimate the median family income in metro Denver is running just above $80,000, said Keith Gumbinger, a vice president with HSH.com.
That has kept Denver from joining “failed” markets like San Francisco, New York and Los Angeles, where the median home price has detached from the median family income.
The median represents the midway point, where half are below and half above. As a larger share of families can only afford homes below the median price, that intensifies competition and price gains in the bottom half of the market.
“You have more competition in lower-cost strata of homes,” Gumbinger said.
Denver isn’t there yet, but it is getting close. Home prices continue to rise faster than incomes and mortgage rates have risen sharply the past two months, which will keep monthly payments on their escalator higher.
The S&P/Case-Shiller home price index for Denver showed prices appreciating at a 7.4 percent pace in December, the fifth highest of the 20 metros studied. The Denver Metro Association of Realtors has the median price of a home sold in the metro area rising at a 10 percent annual pace in January.
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“Prospective home buyers continue to face headwinds such as chronically low inventory and rising mortgage rates, which drive down affordability,” said Cheryl Young, a senior economist with Trulia.
Lenders have accepted a larger share of outside debt like car and student loans when it comes to qualifying borrowers. And they are willing to take smaller down payments, but that comes with a trade-off.
A borrower putting only 10 percent down on the median-priced Denver home would need to show a salary of $92,768.45. And mortgage insurance payments also come into play.
Gumbinger said the mortgage markets have held fast to one standard. The monthly house payment can’t exceed 28 percent of income. And unless incomes start rising at a faster pace, more buyers could find themselves priced out.