Metro Den­ver had more starter homes for sale at year’s start

The Denver Post - - BUSINESS - By Aldo Svaldi

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.

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