Colorado Housing Affordability Update: August 2022

August 25, 2022

While overall prices remain elevated due to high levels of inflation over the past 18 months, the rate of growth moderated in July. Early signs in the housing market also indicate a shift. While the improvements to affordability are encouraging for future homebuyers, the reduction in new building permits and low builder confidence are clear warning signs that new housing supply may not continue to recover as needed.

• Colorado’s Homebuyer Misery Index declined for the first time, by .33%, following its historic rise starting in August 2020. The drop can be attributed to a fall in home prices by 0.28% and a 51-basis point decline in average mortgage rates to 5.3%.[i]
• New homebuilding fell following the 2008 financial crisis and was a main contributor to declining affordability over the proceeding decade. Concerning signs indicate a similar drop in new home building will re-occur despite the need for it to remain at elevated levels.
  • • Permitting for new housing units dropped 20% in July to 3,967 units. If new permitting continues to decline, it will drop below the number needed each month over the next 5 years, 2,883 to 6,050, to close the statewide housing deficit and meet new demand for housing from population growth.[ii]
    • The NAHB/Wells Fargo Housing Market Index captures homebuilders’ assessment of market conditions for new homes sales over the next 6 months. The index for the western region is currently at 42, a decrease of 39 points (-54%) indicating a negative outlook going forward.[iii]

[i] Zillow and Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US, August 24, 2022.

[ii] Colorado Housing Quarterly Update | Common Sense Institute (commonsenseinstituteco.org)

[iii] https://www.nahb.org/News-and-Economics/Housing-Economics/Indices/Housing-Market-Index