According to recent reports, Denver has the highest price increase in home sales for the last 12 months in the country at 10%. Every month since February, we have seen a record high average home price, which is approaching an astounding $425,000. The strength of the market has been so pronounced, some people have started to wonder if we're setting ourselves up for another bubble. Here's what we're seeing:
1. The Housing Affordability Index, which is the median home price compared to the median income, taking into account the current mortgage rate; shows Denver is still well above the rate it was during the last major upswing in 2002-2006. This index shows us that given the median income and low interest rate, homes are still relatively affordable.
2. In contrast to the 2006 bubble, mortgage underwriting standards are the toughest they've been in decades. A large portion of the mortgages from the 2006 bubble were done with little to no documentation, just the buyer's word for it they could afford it, allowing unqualified buyers to purchase properties they couldn't afford. The new standards are in place to prevent that from happening again.
3. The imbalance in the market is due to lack of homes for sale; not illogical, unrealistic, unsustainable demands on the market. There's a saying "what goes up, must come down" and the reverse is also true. Home sales had been low for several years after the crash due to lack of available buyers, but as the number of buyers increases the market is coming back up.
While no one can see the future, all signs point to a strong market without a dramatic downturn lurking around the corner.