Recently engaged, Olivia Woolum and Matt Rocha want to buy a house in Colorado Springs.
The 20-year-old hairstylist and her Army veteran fiancé are planning on getting married this summer, but they’ll have to put their dreams of homeownership on hold.
“We feel a lot of the homes that are priced this high aren’t worth what they’re being priced at,” Woolum said. “It is too expensive right now. We’ll kind of wait until it calms down.”
The couple joins millions of Millennials across the country trying to make the rent every month, pay the bills and save for a down payment on a house.
That’s not an easy task in an environment where home prices are increasing faster than income levels.
In Colorado Springs, the median home price of a single family home was $248,050 as of April 30, according to the Pikes Peak Association of Realtors. The U.S. Census Bureau’s 2010-2014 American Community Survey showed that the latest measured median household income in Colorado Springs was $54,228.
The U.S. Department of Housing and Urban Development considers home prices affordable for families who spend up to 30 percent on housing, with the remaining 70 percent spent on food, clothing and other needs.
‘Less bargaining power’
People shopping for homes in the $150,000 and lower category have “slim pickings” to consider, and the homes tend to be smaller, around 900 to 1,500 square feet, said Realtor Kim Tzitzicas of Your Real Estate Source.
“I am concerned about people who are in that $160,000 and below category because they are having to accept less for that purchase price,” she said. “It is a problem. There is less bargaining power for them.”
Millennials searching for homes in the lower price range make up the biggest group of potential homebuyers — around 30 percent of the market, said Adam DeSanctis, economic issues media manager for the National Association of Realtors. And that means they’ll have fewer options going forward, he said.
Student debt is taking up much of their disposable income, as Millennials pay off college loans with money they could be spending on their first home, said U.S. Sen. Elizabeth Warren, D-Mass., who spoke at the 2016 NAR Legislative Meetings and Trade Expo earlier this month.
“Student debt is crushing young people, it’s hurting the nation’s economy and delaying the opportunity for many to buy their first home,” she said.
Student loan debt is more than $1.2 trillion, and nearly 70 percent of college graduates have some student loan debt, according to the Federal Reserve. Other research groups, like the Apartment List, show that 58 percent of Millennials with college degrees make a student loan payment monthly. On average, they pay $410 each month for student loans — lowering the amount they can save for a down payment.
“Faced with stagnant incomes and rising home prices, many Millennials will be forced to delay homeownership, migrate to more affordable cities or take on more debt,” said Andrew Woo, manager of growth strategy at Apartment List.
Economist Ted C. Jones drilled the numbers down to El Paso County when he spoke to real estate and mortgage professionals in Colorado Springs last week. The United States is seeing the lowest homeownership rate in 50 years, said Jones, senior vice president and chief economist shareholder of the Stewart Title Guaranty Company.
During the past year, Colorado Springs has added 7,300 net new jobs and issued 3,993 new building permits for housing. Essentially, it would take the income from almost two jobs for each new housing unit built, Jones said. Economists state that in a normal market, there should be from 1.25 to 1.50 new jobs to make new housing units affordable, he said.
“That means we are dramatically underbuilding the market,” Jones said. “It’s going to be difficult on a typical entry-level home buyer to afford a home … but they’re having a difficult time just paying their rent.”
The NAR calculates the figures for markets across the country, based on area existing home median sales prices, mortgage rates and median family income from U.S. Census Bureau data to create its affordability index. The lower the index number for a specific market, the more difficult it is to buy a home.
“The Affordability Index dropped only three points this year. Affordability is still relatively good, compared with other areas in the state,” said Charles D’Alessio, broker and owner of the Synergy Realty Group Inc. and chairman-elect of the Pikes Peak Association of Realtors.
According to NAR figures updated Feb. 11, the Colorado Springs Affordability Index was 166.23 as of Dec. 31, 2015, down 3.36 points from 169.59 in 2014. It’s been dropping steadily since 2012’s high of 193.94, according to index numbers.
“Anything over 100 is considered affordable for most people,” said DeSanctis. A rating of 100 means a family with a median income has “exactly enough income to qualify for a mortgage on a median-priced home,” according to the NAR website.
However, people continue to spend a greater percentage of their income on housing, said Jay Garvens of the Garvens Group of Churchill Mortgage.
By 2025, 33 percent of all buyers will pay half their gross income on their housing, including utilities, he said.
Housing in the Colorado Springs market is still affordable, he said, but buyers have to act more quickly these days.
“The last time we experienced demands like this was in 2006 right before the bubble,” Garvens said, referring to the housing crash that led to the Great Recession. He predicted a significant market correction in 12 to 18 months that will slow down the housing market.
Supply and demand
Thanks to low unemployment and interest rates, DeSanctis said the city has a huge pool of buyers, but not enough sellers.
Some homeowners want to change homes, but they’re hesitant to move because they’re afraid they won’t be able to find another home because inventory is so tight, he said.
And lower inventory for sale means higher prices, he said.
In Colorado Springs, first-quarter home prices increased 9 percent above the same quarter last year. The market saw prices grow by 5.6 percent during the fourth quarter 2015 above the market prices during the last quarter in 2014.
New construction tends to focus on upper price levels — homes the typical Millennial can’t afford, he said. The problem is compounded by the inventory for lower-priced homes. DeSanctis said sales of the number of homes priced up to $100,000 dipped 13 percent in the last year, while moderately priced homes between $100,000 and $250,000 dropped 8.8 percent.
“The inventory is shrinking more for the less-expensive product,” he said. n CSBJ