Buying a typical home in metro Denver will stretch millennial buyers financially, but compared to pricier markets, they face good odds of coming out whole, according to a study from real estate website Trulia.
“Denver is a market toward the lower end of how long it takes for mortgage payments to become affordable,” said Ralph McLaughlin, an economist with Trulia.
Consumers are often urged not to spend more than 31 percent of their household incomes on core housing expenses.
But some lenders are willing to fund debt-to-income ratios of up to 43 percent, and buying can help lock in a home payment that annual pay raises will in theory eventually make affordable.
Trulia looked at median household incomes for 25- to 34-year-olds across 100 metro areas in the U.S. It then calculated what share of that income mortgage payments, property taxes and insurance would consume to purchase a median-priced home with a 10 percent down payment.
Denver’s median home value of $314,009 creates a payment burden for millennial buyers of 34.2 percent, outside the definition of affordable.
But incomes for millennial households in Denver are projected to rise 1 percent a year going forward, making payments affordable within 33 months.
At the end of a 30-year mortgage, payments would consume only 13.6 percent of income.
Trulia’s study found three types of metro areas. San Francisco and San Jose, Calif., will never be affordable given current rates of income growth and their high price of admission. Other expensive markets — such as New York, Honolulu and Los Angeles, Oakland, Orange County and San Diego in California — require so much time for payments to reach affordable levels, 15 to 25 years, that the risk of buying is high and renting remains more attractive.
But Denver is in a group of 17 metros where millennials will need to stretch initially but where income growth is strong enough to restore affordability in short order.
In the majority of metros, 73 of the 100 studied, home payments are affordable to millennials from the start. But whether millennials will want to remain in or relocate to those areas is another question.
The affordable majority are led by places such as Detroit and Birmingham, Ala., where payments are under 15 percent of median millennial incomes, and Pittsburgh and Akron, Ohio, where payments are in the 16 percent range.
It is important to note that Trulia’s estimated median home values are below what surveys of list prices of homes show.
A separate survey from Coldwell Banker showed the average list price for a four-bedroom, two-bath house in Denver is at $542,575, while in Westminster it is running $561,762.
McLaughlin concedes list prices show the mix of homes available for sale but adds that millennials tend to buy at the lower end of the market.
Aldo Svaldi: 303-954-1410, asvaldi@denverpost.com or @aldosvaldi
