Denver Homes Are More Affordable Now Than Ever

Today I wanted to update you on the market for the second quarter of 2016 and discuss some of the changes to interest rates and how they affect affordability as well. 

While mortgage rates for this quarter are up a bit, they’re still really low by historical standards. Households with a $60,000 yearly income can currently afford a house with a purchase price of $310,000 at today’s interest rate of 3.5%. If rates were to jump up to 4.5%, this same household would only be able to afford a $275,000 home. This 1% increase in rates can dramatically affect the kind of home you’re going to be able to afford.

Looking at the graph at the bottom of the chart, we can see pretty clearly that 30-year fixed interest rates between 1970 and 2014 were significantly higher than they are today. To put this into perspective for you, in 1970, a household bringing in $60,000 per year looking to buy a home with a purchase price of $170,000 at the average 9% interest rate of the time would have to make a monthly payment of $1,610. Today, a family with the same income per year would be able to afford a $290,000 house for $965 per month at the current average interest rate of 4.1%.

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It’s a strong seller’s market for homes 1,850 square feet or less.

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If we take a look at the second quarter of 2016, what sticks out to me is the fact that there haven’t been any major changes since 2015, but it’s still a very strong seller’s market for homes that are 1,850 square feet or less. There are very low amounts of inventory for those homes—only 1.5 months’ worth—and it only gets to be a balanced market for the homes that are 3,500 square feet or larger.

The next line over on the graph shows the price change and the increase from 2015 to 2016, where the average appreciation rate of 9% has been driven more by homes 1,000 square feet and smaller. These homes saw an increase of 15%, but appreciation rates become lower for larger homes with the exception of the luxury market. Homes on the luxury market that are 3,500 square feet or larger saw a major increase in their appreciation ratings of 11%, compared to around 6% last year. On the last column of the chart, we see that the average number of homes under contract is currently floating around 55%.

If you’ve got any questions regarding our current market, interest rates or appreciation, please don’t hesitate to call, text, or email me at your convenience. It would be my pleasure to be a resource for you about anything real estate-related!