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Homeownership Makes a Comeback

There is some exciting news on the homeownership front to report, but first let’s take a look at the most recent market data.graph 1 front range april

The lack of available inventory continues to impede the market. There simply are not enough homes for sale. The assertion that there are multiple ready, willing and able buyers for every listing on the market is certainly not a stretch. As a result, even though prices are up, the number of closed sales is down year-over-year.

Sales volume, which is the product of the number of sales multiplied by the average price, is about even. Specifically, the volume of real estate sold across all Front Range markets in March decreased 0.6% compared to March 2015. Sales volume was up 43.0% on a month-over-month basis as the spring market kicks in. The inventory of homes for sale grew even tighter, dropping to 1.5 months of supply, clearly indicating a market that favors sellers.

Now, the good news about homeownership. The homeownership rate in the US has historically served as a measure of our overall prosperity. Homes are the largest asset and investment held by most Americans.

Homeownership has not only been the American dream, it has also been the primary engine of wealth creation for many Americans over the course of their lifetimes as a result of home values consistently increasing.

However, homeownership in the US took a major step back in the years following the housing bubble correction of 2006. In fact, homeownership rates have been falling ever since. Until now.

After hitting a 48-year low of 63.4% in the summer of 2015, the percentage of US homeowners ticked up for the first time in almost 10 years at the end of last year, hitting 63.8% according to the Commerce Department. Even though still well below the peak of 69.2% in the summer of 2004, homeownership rates are finally on the rise again and that is an encouraging sign.

That’s not to say there aren’t major headwinds keeping people from becoming homeowners. Prices are rising rapidly, much faster than personal incomes, and that inevitably leads to affordability problems. For now, mostly due to low interest rates, affordability remains relatively low by historical standards. Of course, that can change quickly if interest rates tick up.

Even with rising home prices, buying a home still looks attractive compared to renting. For the simple reason that owning is more affordable than renting. Home prices have increased, but not as much as rents have increased.
graph 2 front range april
A recent study by Zillow found that between 1980 and 2000, residents along the Front Range spent around 30% of their income on rent. By the end of 2015, the number rose to 34% of their income, as rapid rental appreciation outpaced growth in wages. Meanwhile, Front Range homeowners spent just 23% of their income on a mortgage payment for a typical home in 2015.

There is no question that both renting and owning are becoming more expensive and squeezing many folks out of the market. At the same time, thousands of people become homeowners and fulfill the American dream each and every day, even in these challenging conditions for buyers. Enough of them to actually move the US homeownership rate up for the first time in nearly a decade, so let’s take our win while we have it and celebrate these new homeowners. As a full time professional, I know how to help people become one of those homeowners. Please call if I can be of assistance.

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