Owning your own home has long been a fundamental part of the American dream, and it’s heartening to see more and more Coloradans have been able to take advantage of low interest rates and innovative mortgage techniques – even as housing prices rise.
Given the unsteady stock market of the past four years, our homes have become more than our castles. They are prime investments, and personal ATMs.
Judging from some indicators, that’s been a good thing not only for homeowners, but for the economy.
Rising home values across the country propped up the economy after Sept. 11 and enabled many Americans to pad their net worth (at least on paper) as they borrowed against the rising value of their homes for cash to pay credit card bills, complete home-improvement projects or for everyday spending.
Since 2000, home values across the country have risen 55 percent to nearly $18 trillion, according to the Federal Reserve. The borrowing and spending has kept America’s economic engine chugging.
Is it all too good to be true?
Last month, The Economist magazine detailed a global housing boom it called “the biggest bubble in history.” The piece warned of “severe consequences” from a sharp slowdown in housing prices because consumer spending and residential construction have accounted for 90 percent of the country’s recent growth in GDP.
That wouldn’t seem to be good news for the metro Denver area, which recently landed at the No. 10 spot on Kiplinger’s Personal Finance magazine list of the most vulnerable housing markets for price declines.
But local real estate experts and economists believe the market is on solid ground, especially after weathering years of job declines.
In fact, homes have appreciated by about 4 percent each year for the past three years – certainly not the skyrocketing double- digit figure of the late 1990s and 2000, but perfectly respectable given the big job losses suffered in Colorado in 2002 and 2003.
And with the state’s job numbers on the rise – Colorado gained 27,900 non-farm jobs last year – most expect that stable growth to continue.
There are some troubling trends, though, for individual homeowners.
Home construction is outpacing population growth, a gap that worries economists who fear too many people are over-extending themselves.
More than two-thirds of homebuyers are borrowing more than 80 percent of the price of their homes, and Denver ranks fourth in the nation in interest-only loans. About 43 percent of all loans in 2004 were interest-only, double the national numbers.
Overall, however, independent Denver real estate consultant Gary Bauer said he’s not concerned about the area’s housing market. “We’re back to normal right now,” he said. “A majority of people understand that normal is good.”
But these numbers should be a cautionary tale for those Coloradans who overextended themselves by purchasing too much house on an interest-only loan. The principle will come due soon enough, and if prices fall the least bit, people like that could owe more on their home than it’s worth.
