IF BARRON'S IS RIGHT...

Last Sunday, the national edition of Barron’s featured a recovery-themed front page article ranking its top 50 housing markets in the United States.  Based on income, unemployment, job growth, demographics and housing permit activity, Barron’s ranked Denver #4 on that list, projecting that values in our area will increase a whopping 16% over the next 36 months.

While I am often leery of generalized market assessments (the lower end of the market, for example, has outperformed the high end of the market during our recovery and will continue to do so for the foreseeable future), let’s just assume that their three year prediction of 16% appreciation is accurate for a $200,000 home.

Here’s what that means, in real numbers:

SCENARIO 1:  $200,000 home purchased in 2012 with FHA down payment of 3.5% and 30-year fixed rate loan at 3.5%
- New FHA base loan amount of $193,000
- Principal and interest payment of $881.82 (excluding taxes, insurance and FHA mortgage insurance)

SCENARIO 2:  $232,000 home purchased 36 months from now with FHA down payment of 3.5% and 30-year fixed rate loan at 5.5%
- New FHA base loan amount of $223,880
- Principal and interest payment of $1,293.41 (excluding taxes, insurance and FHA mortgage insurance)

If Barron’s projections are accurate, housing costs (under this example) could increase by as much as 47% on a $200,000 home over the next 36 months.

Even if you tempered Barron’s assessment, scaling back the appreciation to 10% and basing your payment upon a 30-year FHA fixed rate of 4.5% (which is an optimistic view of where rates will be in 36 months), your monthly payment would be $1,094.52, which is still 24% higher than it is today.

The bottom line is we are operating in a window of time where rates and payments have never been lower, and the upside for buyers has rarely been higher.

Just twenty months ago, distressed homes (foreclosures and short sales) made up 45% of the Denver market.  Today, less than 10% of the listings on the market are short sales and foreclosures.

Over the past year, overall absorption rates have fallen in half, from 6.09 months of inventory in September of 2011 to just 2.91 months of inventory today. 

There’s no more distressed inventory, hardly anything is for sale, buyers are everywhere and rates are below 4.00%.  What do you think that means for prices going forward?

The factors which created downward pressure on prices for five years have reversed.  This is a market garnering national attention for its upside, with interest rates at record lows, and affordability at an all-time high. 

It’s not the time to quibble over pennies.  It’s the time to find a house, write a solid contract and set yourself up for the next 10 years.