Is Housing for the Middle Class in Northern Colorado Less Affordable?

I was intrigued by this article in the Northern Colorado Business Report as it outlines the concerns of affordable housing for the middle class. There are many factors contributing to this issue.

Homes for Northern Colorado’s middle class are becoming less affordable, according to a key index, which means more people are likely to be priced out of the fast-growing residential market.

A housing affordability index compiled by the Colorado Association of Realtors has dropped by nearly 13 percent in the past two years in Northeastern Colorado. The index is based on data from Realtor associations in Estes Park, Fort Collins, Boulder, Greeley, Loveland/Berthoud and Longmont as well as Logan and Morgan counties.

As of the fourth quarter of 2013, the index was 142 for the northeast Colorado region, compared with 154 two years earlier. Housing affordability index levels above 100 indicate that the median family income is above the minimum needed to afford the median-priced home under current interest rates – so the higher the index, the more affordable homes are available.

The index is designed to measure how much house a family earning the median income can afford under current interest rates, assuming they don’t want their mortgage payment to exceed 28 percent of pre-tax income and that they made a 20 percent down payment, according to Clint Skutchan, chief executive of the Fort Collins Board of Realtors.

A lack of affordable homes for middle-income earners – those who bring home $41,000 TO $67,000 – is troubling, Skutchan said.

“We want to make sure that there are housing options available for everyone,” he said.

In the past two years, as the economy has recovered and people have returned to home-buying, it was predictably the mid-range homes – those priced from roughly $176,000 to $274,000 – that sold fastest, according to Jeffrey Martin, broker at The Group Inc. Real Estate.

In addition, increasing enrollment at Colorado State University in Fort Collins and the University of Northern Colorado in Greeley, along with an increase in hiring by recovering businesses, meant more new residents arriving, and existing renters finding it possible to purchase a home, some for the first time.

The median income and home price varies in each part of Northern Colorado, but in Fort Collins, for example, the median home price at the end of 2013 was $261,000, and the median household income in 2012 – the most recent year available – was $53,359, according to the U.S. Census Bureau.

A bit of math shows that a 30-year, fixed rate mortgage on a $261,000 home with 20 percent down and a 4.5 percent interest rate would come with a monthly payment of $1,057, which falls within 28 percent of the median pre-tax income in Fort Collins, especially assuming that median income in Fort Collins was higher in 2013 than in 2012.

So, for now, the median income and median home price match up, but home prices in Fort Collins jumped 6 percent year-over-year from 2012 to 2013, twice as fast as the 3 percent increase in median income from 2011 to 2012.

The supply of homes within this price range also is dwindling.

With the population continuing to grow and large job-creating projects such as the Woodward Technology Center and the ever-growing ranks of oil and gas employees, the housing market is projected to get tighter in Northern Colorado, which may cause trouble in the future.

“We have to think of the housing stock five years down the road,” Skutchan said.

“We don’t want a situation where people are being priced out of the market,” Martin said.

The solution is smart growth, including infill projects and more multi-family developments, as well as duplexes and smaller homes in general.

It also is important to remember that student housing alone will not ease the multi-family market, Martin said. Low vacancy rates across Northern Colorado have forced rents up, causing many to consider purchasing a home, since a mortgage payment can be comparable to median rent.

Newly built homes also are becoming more expensive, according to Steve Baker, broker at Sears Real Estate in Greeley. The median home price in Greeley in 2013 was $170,000 but most of the new homes under construction there are in the $200,000 range, Baker said.

While consumer may become frustrated by the lack of supply at their buying level, more expensive homes mean that the Greeley market is continuing to recover from the recession.

Greeley also is attracting attention from Denver and elsewhere along the Front Range because homes there, while more expensive than a year ago, still are among the most affordable in the state.

“It’s good to be on the uptick of pricing,” Baker said, “but bad for those customers who aren’t at a certain level of buying power.”

Credit for the content of this post goes to Molly Armbrister of Northern Colorado Business Report.