Remember the good ol’ days of 2015, when housing in Colorado was … affordable?
“Affordable” is what researchers at Colorado State University are calling 2015 based on family incomes versus housing prices, interest rates and other factors of what it takes to buy a house.
Then there’s this housing price shocker: Prices need to fall 32% statewide to get us to 2015’s affordability, according to the Colorado Housing Affordability report from CSU’s Colorado Futures Center.
But before we delve further, the latest local inflation news dropped Thursday: The Denver metro area’s inflation rate was still quite high in September, at 7.7% compared to last year. Nationwide, consumer prices were up 8.2% in the past year.
The rate that prices are going up is slowing and was down 0.2% in the Denver area compared with June and July, according to the Consumer Price Index published by the U.S. Bureau of Labor Statistics. Key changes in what went up and down:
- Food, up 0.9%
- Gasoline, down 22.1%
- All electricity, up 3.1%
- Rent, up 2.9%
“The good news is the month-over-month inflation is down slightly, the bad news is that on a (year-over-year) basis it is still elevated, about 7.7%,” said Gary Horvath, an economist at Cber.co in Denver. “There will be a long, rough road to follow to get to the Fed’s desired target rate of 2.0%.”
The Federal Reserve that Horvath speaks of has been increasing interest rates all year to help tame inflation. Whether that’s been working, it certainly took the steam out of the run-up in housing prices, as the latest housing data shows that Colorado median home prices grew less than in prior months while the supply of for-sale homes continues to pile up (more on this below). The Fed is expected to increase rates again in November, The Wall Street Journal reported.
Steven L. Byers, senior economist at the conservative-leaning Common Sense Institute, put it this way: The average Colorado household spent $1,685 more in August and September because of inflation. That’s an extra $111 a month on food, $231 on housing and $68 on medical care for an average of $843 more per month.
“The average household has spent $9,000 more this year for the same goods they bought in 2021. The impact of this number cannot be understated,” Byers said in an email. “As prices rise, families have less discretionary income and our economy suffers.”
>> See CSI’s September inflation report
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Colorado housing prices, 2015 style
Back in 2015, the median sales price for a house in Colorado was $285,000, according to data from the Colorado Association of Realtors. Between January and September, the median price averaged $575,000.
Housing prices are already much higher now than they were seven years ago, but combine that with today’s higher mortgage interest rates (7.1% for a 30-year fixed loan, as of Friday’s Mortgage News Daily calculation versus just under 4% in 2015) plus consumer incomes that haven’t kept up with inflation or home prices, and 2015 was a pretty sweet year to buy a house, according to the CSU’s Colorado Futures Center.
Getting back to that affordability would require an average 32% drop in housing prices to get the same share of housing stock to a price that is affordable to the median family income. And that housing price adjustment differs by county, with the value at one end needing to drop about 15% in Huerfano County but closer to 60% in Jackson County. Denver was just below the state’s average price decline adjustment of 32%.
“As you can see from the report, it would take pretty considerable drops in values in order for us to get to a level of ‘affordability’ that the state enjoyed back in 2015,” said Phyllis Resnick, the center’s lead economist and executive director. “I use that word in air quotes because I don’t think people thought 2015 was a terribly affordable era. But in retrospect, it actually was because interest rates were almost historically low and the run-up in prices hadn’t happened yet.”
Affordability is also impacted by limited housing supply, added Jennifer Newcomer, the center’s research director.
“We have stated before that we’re going to need to create a separate environment to basically bring supply at price points that have largely not been catered to for a long time (because) the current market environment is not incentivized to do anything different when it comes to new production,” Newcomer said. “We’ve noodled on this idea of supply to get us out and take us out of the challenge that launched some of the Great Recession, when we had a lot of home builders exit the market entirely.”
Increasing supply could very well provide Coloradans with more attainable housing, but this comes after last decade’s decline in construction workers, slow wage increases and the regulatory environment, though Resnick said the notion of local regulations driving up cost always make her “a little skeptical when one thing is singled out as the only reason.”
“We got into this work five years ago because we were convinced that the construction defects (law), while real, (would not cause) the housing market to correct itself” if removed, Resnick said. “All these components matter. … Labor’s expensive, materials are expensive, the regulatory environment is part of it and there may not be enough land in the condition that you need, coupled with COVID and a real constriction in what came to the market. That’s probably an unsatisfying answer, but we hope to stimulate the right conversations where people recognize that all of these issues are part of it.”
This was the first of a series of housing affordability reports from the organization.
>> Read the housing affordability report
Related:
→ Colorado home sales slow: The median price of a house in Colorado increased 7.7% to $560,000 in September from a year ago, according to the latest data from the Colorado Association of Realtors. For the same period, the number of new houses to hit the market dropped 15.1% as the number of all houses for sale grew 46.5% to 15,822. That means there are now more houses available for sale than last year and they’re taking longer to sell — stretching an extra nine days to 37 days in September, up 32.1% from a year earlier. >> See Colorado data
- In Denver County, where median sale prices grew a mere 7.8% to $605,000 in September from a year ago, it’s the first time in four years that annual price appreciation is back down to single digits. “It’s important to consider this metric as it represents that there has not been a ‘crash’ but rather a simple, ordinary correction,” said Matthew Leprino, a Denver Realtor. >> See Denver County stats
The Daily Sun-Up podcast | More episodes
Election 2022: The Colorado economy
This may not be a presidential election year, but the major state seats are up for grabs this November in Colorado. That includes governor, attorney general, secretary of state and treasurer.
In debates hosted by The Colorado Sun this week, incumbents and their top challengers were asked about the economy, including a question by a University of Denver student asking the treasurer candidates what they would do to drive down inflation.
Treasurer Dave Young, a Democrat, pointed to a low-interest business loan program called Climber Loan Fund, plus a new state retirement program that will launch its pilot Monday. The Colorado SecureSavings program, which will require employers with five or more workers but no retirement plan to adopt next year, would automatically enroll employees. A percentage of workers’ earnings flow into the account and the company isn’t required to match contributions.
Former state Rep. Lang Sias, the Republican challenger, said he’d use his “bully pulpit to argue for putting more money into people’s pockets” with the Taxpayer’s Bill of Rights. He also criticized the Climber loan, which had just nine businesses participating at the last official count, compared with the 2,000 it was supposed to help.
“Now you may have made some more loans since then, but it’s still a failing grade,” Sias said. “Let’s be candid about what we’ve accomplished with that program and how much it has cost taxpayers.”
Young replied that the Climber loans competed with federal Paycheck Protection Program loans, which were forgivable.
“We have low market rate interest rate loans with Climber but it’s understandable that a small business would (opt) for a loan that is forgivable and doesn’t have any interest attached,” Young said.
It’s free to stay informed about this year’s election and how ballot measures could impact your future in Colorado. The Colorado Sun debuted our Voter Guide 2022 this week. You can also listen to the debates and read the recap right here >> Governor’s race, Secretary of State, Treasurer
→ More Colorado Sun events: coloradosun.com/events
Starbucks closing Colorado Springs location
It’s been a busy year for dissatisfied Starbucks workers, who have moved to unionize at several locations in Colorado, including in Greeley and Denver. But even after workers voted to unionize, it hasn’t gone as well as workers planned.
And now Starbucks is planning to close the Colorado Springs location at Brookside Street and Nevada Avenue a day before the first bargaining between workers at the location and the company was to begin on Oct. 24.
In an email, Starbucks confirmed that location is closing Oct. 23 and notified the union of its plans earlier this week. The company said the closure is “due to ongoing safety issues impacting customers and partners,” according to an emailed statement from Starbucks.
“We look forward to meeting with Workers United representatives for a scheduled effects bargaining session pertaining to the announced store closure on Oct. 14 — just as we have for other stores,” the email said. “We continue to equip our partners with the training, policies and information they need to address the societal challenges that cross our store thresholds every day. But when these efforts aren’t enough to ensure our partners’ safety, we will make the decision to close a store, regardless of its revenue or union status.”
Related: “Howard Schultz’s fight to stop a Starbucks barista uprising” >> Washington Post
Other working bits
→ Gig worker or employee? The U.S. Labor Department proposed a rule this week that could make it more difficult for companies to classify someone as a contract worker instead of an employee, who may be entitled to more benefits and job protections — and cost employers less. Lyft, DoorDash and other gig-economy companies reportedly don’t mind the update.
But however the rule turns out, it likely won’t impact Colorado very much, said Jessica Scott, a partner at Wheeler Trigg O’Donnell, a Denver law firm. “Federal law is always the floor and so states have the ability to add more protections,” she said. “And in Colorado, the test of who is an independent contractor is harder to meet than this proposed test. (It’s) harder for an alleged employer to meet to show someone’s an independent contractor. That’s always been the case.” >> Vox, Fox Business
→ Hoarding workers: Colorado business owners have said they’re hanging on to employees even as they fear a weaker economy because it was tough to hire enough workers in the first place. A New York Times story reports on hoarding workers could be good for the economy. >> Read
→ $7,000 bonus for state prison jobs: Colorado’s Department of Corrections needs help and is offering incentives of up to $4,500 for those who get hired at a 24/7 facility plus an extra $2,500 if it’s at a facility in Cañon City, Buena Vista, Sterling or Limon. There are also up to $5,000 in relocation incentives for the first 50 Weld County or out-of-state residents who get hired at the Cañon City or Buena Vista facilities. >> Jobs, Read story
→ From NFL player to brain surgeon? This New York Times story popped up on my news feed: “It’s never too late to pivot from NFL safety to neurosurgeon.” Well, not too late for Myron Rolle, that is. He was also a Rhodes Scholar. The story is part of the publication’s new “It’s Never Too Late” series. >> Read
As always, share your two cents on how the economy is keeping you down or helping you up at cosun.co/heyww. See you next week! ~ tamara
Miss a column? Catch up:
- What’s Working: Colorado workers push back against the retirement age
- What’s Working: Colorado business leaders grow more pessimistic about the local economy
- What’s Working: Colorado home prices are still up even as real estate market experiences sales slump
- What’s Working: Hello entrepreneurs, it’s Denver Startup Week!
- What’s Working: 44% of Colorado small businesses surveyed have put hiring on hold
- What’s Working: Older Coloradans are returning to work and inflation may be to blame
What’s Working is a Colorado Sun column about surviving in today’s economy. Email tamara@coloradosun.com with stories, tips or questions. Read the archive, ask a question at cosun.co/heyww and don’t miss the next one by signing up at coloradosun.com/getww.
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