Metro Denver had more starter homes for sale at year’s start
There were 25 percent more starter homes available in metro Denver at the start of 2017 than at the start of 2016, and about a fifth more trade-up homes, according to a report Tuesday from the real estate firm Trulia.
But the inventory in those two categories is so depressed that first-time homebuyers or those hoping to avoid a heated bidding award on a more affordable property aren’t likely to see much relief.
“Those big percentage increases amount to small nominal increases” Trulia’s chief economist Ralph McLaughlin said. “It is a drop in the bucket.”
Still, something may be changing in the market. The starter-home inventory has seen annual increases for four straight quarters, and with each passing quarter, the percentage change is getting larger and larger.
Trulia divides the housing stock in a metro area into three tiers, with the bottom third in price defined as starter, the next
tier as trade-up and the upper tier as premium.
There were 773 starter homes available for sale in the first quarter in metro Denver, compared to 615 in the same quarter a year ago, according to Trulia. There were 983 trade-up homes available compared to only 812 a year earlier. The number of premium homes fell to 2,498 from 2,569.
Everything else being equal, the number of homes listed for sale should reflect that mix with one third from each tier. But imbalances in supply and demand can severely skew the share.
For example, only 18.2 percent of metro Denver listings were in the starter category, which carries a median list price of $233,267. Trade-up homes, which have a median price of $363,317 in metro Denver, account for only 23.1 percent of the inventory available for sale. Premium homes, with a median list price of $635,000, account for 58.7 percent of the mix available to buyers.
Trulia plotted the 100 largest areas for the percentage recovery of peak prices before the downturn, along with the biggest changes in the inventory of homes for sale. Denver was at the extremes on both measures.
McLaughlin puts Denver in the category of markets that have recovered “too much” — along with cities like Seattle and San Francisco. If home-price gains outstrip income gains by too wide a margin, or if the price gaps between each tier are too large, it can make it harder for a housing market to function.
“If it is difficult to afford your next house, you may be more inclined to stay put and renovate your existing home. It won’t ever go on the market,” he said. That depresses inventory, further driving up prices.
Trulia also divides markets into three income tiers to study affordability. The top third of households in income only have to spend 13.7 percent of what they make to afford the median-priced premium home in Denver. Not only do they have the largest selection of existing homes to choose from, a large share of the new homes being built target them.
The middle tier of earners would need to spend 26.1 percent of their income to get into the median-priced trade-up home in metro Denver, within the range of what mortgage lenders are willing to support. For the bottom-third of earners, adjusted to exclude renters, affording the median-priced starter home would consume 41.1 percent of income. Most lenders would reject that loan, absent a very large down payment to bring that ratio down.
That might offer one explanation for the rise in the starter home inventory — more would-be buyers of starter homes are now priced out of the market. Another explanation comes on the supply side. The Denver Metro Association of Realtors found a large 19.2 jump in the inventory of condos available for sale last month, which it linked to more mom-and-pop landlords, who snapped up bargain properties during the downturn, now taking advantage of higher prices to cash in.