According to the Bureau of Economic Analysis personal incomes in Colorado rose at annual pace of 5.3% in the 2nd quarter, down slightly from 5.4% in the 1st quarter. Personal income includes income from wages, owning rentals, owning a business, interest, dividends, and capital gains, as well as government benefits. This measure is the most comprehensive look at income. This 5.3% increase was the 5th highest in the country.

 

And an increase in personal income of 5.3% can easily support median home prices of 8% in Denver absent any interest rate changes. Let me show you how. This is a monthly increase in metro Denver of roughly $350 a month. And median home prices are up 8% or $30,000 to $405k (attached and detached). This is equal to a monthly payment increase of roughly $150.

 

But, mortgage rates are up 1% too. And rising interest rates are having an even bigger impact on the cost of homeownership. When you factor in higher interest rates the cost of a median priced home has increased by $365 a month. Ouch! Thus, higher rates are having an even bigger impact on home affordability. This is helping put a lid on home price increases.

 

However as rates rise above 5% and remain there I am very afraid that our inventory levels may DROP as fewer homeowners will be able to afford their move-up home. Thus, our market will become STUCK like much of northern CA. And with less inventory a market can do just fine with lower demand for housing.