Housing and jobs are so connected that it was difficult to avoid the intersection of the two at an economic summit held this week for the Colorado Realtors Association.
Jobs in Colorado? So, so many job openings. Two for every unemployed person in the state. Available houses for sale? So, so few houses are available at affordable prices, whatever those may be. That disconnect tempered the positive outlook that some had about the better years ahead and what the real estate industry can expect in 2023 and 2024.
“Affordability, or lack thereof, will remain our biggest hurdle. And people won’t come here and the jobs won’t move here, the companies won’t be here if we don’t offer some kind of affordable housing,” said Kelly Moye, a Realtor at Compass Real Estate. “So, we’re trying to figure out how we do that. The regular market, with the way it works with supply and demand, just pushes prices up or down. That’s the way it goes. But is there anything that we can do as a city, as a state to help create a situation where everybody can live here?”
The data-heavy conference pointed to a possible reason for Colorado’s limited supply of workers: Not enough places for everyone to live.
A look at the data
The majority of households in America are homeowners, with ownership rates at about 65%, according to the U.S. census. Colorado’s not far off from the national numbers, with homeownership rates inching up in recent years to 65.9% in 2021. A recent low was 62.4% in 2016 while the high of 71.3% was in 2003.
A trend happening nationwide and in Colorado for several years has been that fewer houses are being built each year. The National Association of Realtors’ data guru Nadia Evangelou calls it a housing market slump with the number of new housing starts off by 1.5 million a year. She expects that flatness to continue in 2023 as the industry deals with ongoing material bottlenecks.
But another thing limiting potential homeowners from buying a house is interest rates. When they shot up last year, homebuyers had to spend a lot more to buy a lot less.
In other words, at 3% (where mortgage rates were in January 2022), the monthly mortgage payment on a mid-priced home was $1,410, according to the National Association of Realtors.
At 6%, the payment jumped to $2,010.
At 8%, it would be $2,460.
The 30-year fixed mortgage rate was 6.45% on Thursday, after hitting a high of 7.2% in October, according to Mortgage News Daily.
Most renters can’t afford a starter home, which NAR defines as houses priced at 25% less than the median sales price. That puts the median price of a starter home at $321,600 in the U.S.
Evangelou, NAR’s senior economist and director of real estate research, broke it down into a chart. Keep in mind, these are national figures:
To afford a starter home, with a 10% down payment at a 6.1% interest rate, a buyer’s income must be $86,360 if they don’t want to spend more than one-third of their income on housing. Only 36% of renters met that income level.
In Colorado, it looks worse for renters hoping to become homeowners. NAR pulled up the similar numbers for the Denver metro area and that translated to only 14% of local renters being able to afford to buy a “starter home,” currently at a median price of $480,000. As for a mid-priced home? The number of renters who can afford one drops to 6%, as seen in this updated chart below:
“It’s a double pain because they have to deal with rent prices as well as saving up for the down payment,” Evangelou said. “We’ve talked about low affordability and low availability of homes, but when we put these two factors together, we can see what is the real impact and what challenges buyers face out there.”
And if renters can afford Denver’s starter home, there aren’t many available, according to data from REColorado. Currently, about 32% of the 1,015 condo or single-family home for-sale listings in Denver were below $480,000. Only 89 are for single-family homes, and only 21 are listed at less than $400,000, said Matt Leprino, a Denver-area Realtor with Remingo, who tracks the data.
The number may be rising though. Leprino said he was surprised there were even that many available. “I would’ve guessed that number was below 10% last summer,” he said.
On a hopeful note, the real estate industry is counting on interest rates to drop. That may not come until next year, but inflation eased a bit in December, and the Federal Reserve raised interest rates a quarter of a point in January, compared to three-quarters of a point for several months last year.
“In 2022, home sales activity dropped about 15% per month,” Evangelou said. “In 2023, we expect home sales to continue to drop but slower, like around 7% drop. And 2024 is when the housing market will rebound and we expect to have about 10% more home sales than 2023.”
Where are the workers? Not “on the couch”
Had the pandemic not happened and Colorado’s job growth continued as forecasted years earlier, the state would have added 124,000 more jobs by now, said Patty Silverstein, president of Development Research Partners in Littleton.
The pandemic put hundreds of thousands of Coloradans out of work. The state’s labor department estimates the loss at 374,500 jobs during March and April 2020. But since then, Colorado added them all back and more — approximately 466,400 jobs have been added since spring 2020 for a 124% recovery rate, according to the most recent state jobs report.
But the job growth momentum we had before the pandemic is gone, Silverstein said.
“I will suggest to you that we are not going back to that pace, given the demographics, given changes in what we’re seeing in the employment base,” Silverstein said during her economic overview at the event. “I don’t think that 124,000 — our perfect pace of growth — is even going to be possible.”
However, employers say they’re still struggling to stay fully staffed. And that shows up in a data point that ranks Colorado as the second highest state for how many available people are in the labor force. Out of all Coloradans 16 years and older, 69% are working or looking for work (the rest are retired or not looking for work). That’s 3.2 million people, which is twice as large as Nebraska’s workforce. Nebraska had the nation’s highest labor force participation rate at 69.8%, according to the Bureau of Labor Statistics.
“It’s incredibly, incredibly tight out there. And I know many of you are thinking, ‘Well, we just need to get those people to get back out and work.’ Maybe,” Silverstein said. “There are some of those folks across the country but they’re not here in Colorado. … People are not hanging out on the couch here in Colorado. They are out working or actively looking for a job.”
The BLS, through its job openings report, estimated that Colorado had 231,000 job openings in November. At the same time, there were roughly 113,447 unemployed Coloradans. That’s two job openings for every person looking for work.
And according to Aspen Tech Labs, an Aspen-based company that tracks job openings, three of the top four industries with job openings were among the lower-wage occupations of health care, food service and retail.
Whether renters have vacated the state for cheaper housing is a little more difficult to research beyond anecdotal evidence.
Silverstein doesn’t blame the higher cost of living for chasing away lower-income earners. It’s more so about our demographics. With a shrinking number of younger workers entering the workforce, the average age of a worker continues to get older. When the Baby Boomers retire — and all Baby Boomers will be over 65 by 2030 — that will leave a big hole in Colorado’s labor force. Even the real estate industry must figure out how to maintain productivity, she said.
“There’s a company coming out of Buena Vista making homes in a matter of weeks. They’re assembling them, a factory line. We need to get creative rather than putting in however many people it takes to build a home on site, they’re doing it much quicker, much faster and at a more affordable cost by doing it in a factory,” she said, referring to Fading West modular home factory. “We need to figure out how we can use automation moving forward to do some of that and provide productivity.”
Here’s a year-old chart showing how Colorado’s population has changed and is forecast to change through 2050. Those 65 and over are the fastest growing segment of our population.
Readers speak: Not a good time to start a business
Despite last week’s Secretary of State report that Colorado’s new-business filings were at an all-time high in the fourth quarter, 2023 probably won’t reach a record, at least according to results from the latest reader poll. About the same rate of people who are keen on starting a business this year also said no thanks, it’s not a good time.
But some entrepreneurs were happy to share their tips:
The worst part about running your own business, said artist Mary Clark from Highlands Ranch? The varied monthly income. But, she added, “On the other hand, the income from my art merely adds to my retirement savings.”
For Kimberly Vitale in Windsor, the taxes, fees and other costs are a drag. Government regulations like the new FAMLI program (which workers began paying into this year to invest in paid leave for the future) has Vitale reminding other entrepreneurs keep this in mind: “Do you have enough capital to survive?”
Meanwhile, Marty Bruno from Littleton, who used to work a day job and run a coin-op laundry, recommends, “Talk to others who own a similar business before diving in.” Now retired, he probably would appreciate advice for his dream company: “A mattress company. I’d be the chief tester.”
Thanks to all who contributed. Take another?
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More working bits
➔ Judge orders Starbucks to stop threatening Denver workers — An administrative law judge ruled Monday that Starbucks retaliated against workers at “the Barn” store in Denver after union efforts began, 9News reported. The judge ordered the company to reinstate a fired worker, pay back wages and stop threatening employees, according to the order. Employees at nearly two dozen Starbucks stores in Colorado filed for the right to be represented, but results have been mixed with some stores closing, and retaliation charges filed against the company. >> 9News, Sun
➔ Denver auditor collects $500,000 for workers in January — Denver employers who overlooked the minimum wage increase to $17.29/hour on Jan. 1 better get on it. The city auditor’s office collected $541,220 in January from 120 employers. Recent cases include collecting $30,000 from a Denver International Airport contractor who incorrectly classified 31 workers as apprentices and a food service company that advertised jobs at $15 an hour in 2022 when Denver’s minimum wage last year was $15.87. >> Auditor’s report, File a wage complaint
➔ Colorado had lowest jobless rate for construction workers — Higher interest rates may have cooled the home-building sector but a backlog of projects continues to fuel the need for more workers, according to the Associated Builders and Contractors. ABC reported that Colorado had the lowest unemployment rate for construction workers in the U.S. in December, at 1.2%. That was the lowest on record for the state. Colder states of Alaska, Wyoming and Minnesota had much higher unemployment rates, at 13.3%, 10.4% and 7.6%, respectively. >> Report, chart
➔ IRS: No taxes on TABOR refunds — Earlier in the week, Colorado tax payers were told to hold off on filing their taxes. The directive came from the IRS, which was looking into special refunds that several states paid to their residents last year, including Colorado, which, by state law, had to give back excess state revenues to taxpayers per the Taxpayer’s Bill of Rights. We’re now in the clear. The IRS on Friday said it won’t challenge the taxability of Colorado’s TABOR refunds. >> IRS statement
^^ The latest Colorado Sun podcast on the economy ^^
Thanks for sticking with me for this week’s report. As always, share your 2 cents on how the economy is keeping you down or helping you up at cosun.co/heyww. ~ tamara
Miss a column? Catch up:
- What’s Working: Colorado business bankruptcies decline; startups on the rise
- What’s Working: Get ready for Colorado’s wage transparency law, part 2
- What’s Working: Colorado’s unemployment rate dropped, but so did the number of people in the workforce
- What’s Working: How Colorado’s high egg and energy prices mesh with its slowing inflation
- What’s Working: Colorado business leaders are pessimistic about 2023. Should they be?
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