My greatest fear since the housing crisis of 2008 through 2012, was that upon recovery, America’s middle class would be greatly diminished, as some portion would never fully recover, yet another portion would have been healthy enough to take advantage of the opportunities presented during
depressed times to actually increase their status. And by all appearances, that has occurred. What was it that most promoted the healthiest of the middle class to upper class status? It was real estate. And what distinction reduced the status of the most vulnerable of the middle class? Same answer, except the lack thereof, and in many cases, forever. By the way, I’m not snubbing the less fortunate here. A healthy middle class, along with the contributions of the upper class, will absolutely lift up and provide for the needs of those in our society most in need. It is my fervent opinion that home ownership is, more than anything, the cornerstone to America’s middle class. And while I’m not an expert in home ownership abroad, I would still venture to say that it represents a significant distinction between classes in other countries, as well. In fact, it may be even more pronounced, especially in European and other nations where mortgages are not as prevalent, let alone as lax as they are in America. I did discover this interesting tidbit—at 64.5 percent, the United States rates 41st in home ownership rates around the world. As I drilled into this, particularly for the countries at the top of the list, I found a hornet’s nest of barely habitable ‘homes’ sold cheap (forced, in some cases) by governments to tenants, borderline slave labor directed in communist nations to build super cheap homes—bribery, corruption, and other details that weren’t going to be relevant to this article, yet were intriguing nonetheless. In the U.S., two factors relative to home ownership are commonly monitored as a measure of economic health. 1) The Home ownership Rate: This represents the percentage of American households that own a home versus renting, stated in the previous paragraph. (By the way, Denver is steady at 61.6 percent in 2015 and 2016.) 2) Home Affordability: This represents the average take-home pay as a ratio of what it takes to qualify to buy the average priced home in a given market area (or nationally). In February 2017, nationally, the average take-home was 160 percent of the income needed to buy the average house. That is up from just 112 percent in 2005. Much improved, but in decline from the peak of 176 percent just one year earlier. Even worse, we in the western U.S. are at just 113 percent, down from 127 percent a year ago. Yikes! Does affordability affect the home ownership rate? You bet it does! And it further exacerbates the division of classes as able investors buy and hold more homes, both single-family and multi-family, to ensure their long-term wealth. Please note: those who can absolutely should buy and hold, and grow their wealth. And everyone else should start wherever they can to build their futures, as well. So, this dynamic is very real and pronounced right now in the Denver metropolitan area. Ownership is harder to achieve and rents have skyrocketed, as well. Talk about a rock and a hard place! Affordable housing for the average worker is in extremely short supply, and the cost of land and construction is making it very difficult for builders to fill the void. The closest thing to a solution to this lack of entry level and affordable housing, short of government intervention (which is also in process), is the current boom in apartment construction, which may, due to the recent revisions in the Construction Defects Law, soon turn into a boom in condominiums and townhomes available for purchase. This will, however, represent a significant citification (not a real word, but you get it) of Denver Metro as the availability of single-family homes with yards and fences and 2-car garages becomes increasingly available only to white collar and executive homeowners. The median price of a single-family home in the six-county Denver Metro has gone from $279,500 to $411,000 (up 47 percent) in just four years. Jefferson County median is up from $275,000 to $427,000 (55 percent) in the same period. The average new home in the Denver area, according to a study by Colorado Public Radio, is over $500,000, and the number of homes being built is not nearly enough. Just 9000 new homes were built in 2016 versus 20,000 homes per year pre-2008. But don’t blame the builders. The cost of permits and utility taps, let alone the red tape and requirements of the building departments, has mushroomed. Suffice it to say, there are a lot of fingers in the pie. I’m compelled to say the day will come, because it has historically and cyclically occurred, that home prices will stall and possibly even decline at some point in the future. However, we’re not seeing any signs of that day approaching anytime soon. As supply and demand goes, the supply side looks pretty grim for awhile, and so it seems the relief would most likely come from the demand side in the form of a downturn in the Denver economy, resulting in fewer people moving here for jobs, and perhaps even some moving away for less expensive housing and ample job opportunities elsewhere. There is no question that Denver area employers will have to raise wages to retain employees as housing costs continue to rise. It is for these reasons, and my high regard for the critical importance of our middle class—who comprise the most consistent productivity and contribution all at once to the tax rolls, the economic engine and the foundations of local communities—that I encourage families and individuals to do whatever it takes to secure your piece of the pie, i.e., real estate ownership. We all have to live somewhere. Why pay off someone else’s mortgage when we could be paying off our own? What else will give you a guaranteed hedge against inflation, and even keep you warm and secure during temporary times of deflation, which inevitably recovers? And the biggest question of all is where will you and your family be at the end of the next inevitable real estate cycle?
As always, I wish you happy homes!