Rising home prices have greatly outstripped income gains in Colorado in the past decade, forcing buyers to shoulder heavier and riskier mortgages, according to a new report from the Federal Deposit Insurance Corp.
Those higher prices and modest raises have kept Westminster renter Joy Tirrell from crossing the threshold to homeownership.
“I’m almost there, but still don’t have enough” for a down payment and monthly mortgage payment, said Tirrell, an administrative clerk at a downtown Denver accounting firm. “I looked around, but prices are ridiculous.”
Between 1994 and 2004, home prices in the state outpaced per capita personal income by 32 percent. The gap has largely come about since 1999, when home prices kept rising despite a flattening in incomes.
“Income is what is going to be paying for that home,” said Alan Bush, regional manager for the FDIC in Dallas. “If home prices accelerate too rapidly, there will have to be an adjustment.”
Buyers who take the plunge often leverage themselves heavily. Colorado residents carry some of the highest debt versus income levels in the country, Bush said.
Last year, the state ranked second for the percentage of borrowers using adjustable-rate mortgages and fourth for those taking interest-only mortgages.
“The motivation for taking an ARM is that you need to keep your interest rate as low as possible,” said Mike Rinner, a senior analyst with Genesis Group in Centennial.
Both ARMs and interest-only mortgages reduce payments upfront but leave borrowers vulnerable to rising interest rates.
Brighton resident Tina Tamayo saw her mortgage payments jump from $890 to $960 per month, a 7.9 percent increase. Her townhome’s homeowners association fee rose from $120 to $140 a month, or 16.7 percent.
Those expenses outstripped a 5 percent raise from her employer, the Colorado Department of Education.
“I changed my insurance plan to get more money,” she said.
The good news is Colorado is again cranking out more jobs. Job growth ran at 2.6 percent in the first quarter of 2005 in Colorado compared with 1.7 percent for the nation.
And Colorado, while it has continued to see home values appreciate, isn’t as heated as other markets.
U.S. home prices appreciated an average of 12.5 percent for the 12 months through March 31.
Colorado gains were 4.75 percent, ranking the state 47th, Bush said.
Low interest rates also have cushioned the blow of home prices outstripping incomes.
But Tirrell said the gap between what the market is demanding and what she can afford remains too large to cross right now.
“It is a struggle,” Tirrell said. “I almost considered moving out of state.”
Staff writer Aldo Svaldi can be reached at 303-820-1410 or asvaldi@denverpost.com.
