on September 28, 2022 by Staff in news, Comments Off on Housing market “correction” won’t solve the state’s affordable housing challenge without an unprecedented fall in home prices

Housing market “correction” won’t solve the state’s affordable housing challenge without an unprecedented fall in home prices

The issue of affordability in housing for Colorado has been documented extensively, specifically when it became more severe throughout the second quarter of last decade. The state’s strong recovery from the Great Recession and the pandemic in conjunction with the high housing demand and limited supply that was available on the market led to price pressures greater than any previously experienced by the state in decades. The last couple of months have predicted the changing of economic conditions. While recession isn’t in the forecast but the economic situation in the state has been showing signs of vulnerability to wider macroeconomic conditions and is exhibiting evidence of declining.

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It is reasonable to consider the cautionary economic news over the past couple of several months, specifically in relation to the rise in interest rates and the impact they have on housing. We also have to ask if, under emerging economic conditions, the evolving market will be able to address the housing affordability issues in Colorado. Actually, the “will the market correct itself” issue is being asked more frequently in the context of changing economic circumstances. This brief on research explores the concept of the market for housing “correcting” itself by assessing the degree of decline in house prices that is required for each county, for the same share of the homeowner-occupiable housing stock that is affordable for the median income in 2021 . is affordable for the median income in 2015.

While markets do “correct,” achieving 2015 affordable levels with an economic correction will require substantial decline in the value of homes. In particular, a change to 2015 levels of affordability requires a total reduction of 32% in home value, and county-level decreases that range from a peak at 59% and a smaller 15 percent. A market correction by itself will not restore relative affordability without considerable marketplace pain.

“With mortgage rates breaching 6% last week, it is tempting to think an adjustment in home values will address a significant portion of Colorado’s affordability challenge,” explained Dr. Phyllis Resnick, lead economist and executive director of the Colorado Futures Center. “Our analysis shows that is unlikely to happen without a dramatic — and in many counties, unprecedented — drop in home values. We cannot rely on market adjustment alone to address affordability.”


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