Some frustrated homebuyers may wish they could build a time machine and go back a year, even six months.
Between much higher home prices and sharply higher interest rates, the monthly payment on a typical home purchased in metro Denver last month was 54.5% higher than it was in May 2021, according to an updated study from Seattle-based real estate research firm Zillow.
That “typical” payment in Denver hit $3,394 a month in May, which is above the national average of $2,031 and above the typical rent payment in metro Denver of $1,988 captured in the Zillow Observed Rent Index. Rent inflation is running 14.2% a year in metro Denver, a fraction of the 54.5% gain seen in home payments on new purchases.
Those who owned a home before the pandemic or who took advantage of low rates in 2020 and 2021 to purchase a home or refinance a mortgage are sitting in a much better position than those who are still looking to buy. And as bad as May was, the situation deteriorated further this month.
“Mortgage rates took an unprecedented leap skyward over the past two weeks and quickly multiplied housing costs as they rose,” said Zillow economist Nicole Bachaud, in a release. “We are already seeing signs of waning demand, and expect these recent rate hikes to quicken the market’s needed rebalancing. While shoppers will likely experience less competition for homes than the frenzied recent months, their purchasing power has dwindled.”
Income gains of around 6% can’t keep pace, creating the most significant affordability challenges in 15 years, Zillow warned. April numbers showed monthly payments nationally were consuming 28% of homeowners’ monthly incomes. Given the recent rise in interest rates, that ratio has likely reached close to the red zone of 30%. When affordability last bottomed out at these levels in July 2006, a housing crash followed.
Essentially, homebuyers hardy enough to be braving the market in metro Denver are paying 1.5 times more than what they would have 12 months earlier for a comparable mid-range home.
Nor is Denver the most extreme market. Home payments in Raleigh, N.C., have gone up nearly 70% in the past year, but run $900 below the typical payment seen in Denver. Nashville; Las Vegas; Orlando; Tampa Bay, Jacksonville, Fla.; Atlanta; Phoenix, and Charlotte, N.C., all had annual gains in monthly payments of above 60% the past year.
Normally, when interest rates rise as sharply as they have, home price gains soften and even reverse. But despite the big run-up in rates this year, it is only in the past month or so that home price gains appear to have hit an inflection point. Home prices are still rising but at a slower pace.
Just over six in 10 Colorado residents rate housing costs as an “extremely” serious problem in the state, with another 25% calling it a “very” serious, according to the Pulse Poll conducted by the Colorado Health Foundation. That is nearly on par with rising inflation when it comes to being cited as the most pressing concern facing Colorado by those surveyed.
