Is Greater Denver Real Estate just stupid bubbly overpriced? (balloon payment, apartment)

[mol666]

Bungalows in City Park / Congress Park are going for $350K +. I see all these condos built near downtown selling for over $250K. Who on earth buys these places? Do people in Denver really make enough money to afford them? I've lived here for almost 6+ years and I've met very few people who have the salary to justify hefty mortgage payments.

Meanwhile rents in these same areas are going for about $1 a square foot.

Any thoughts on the Denver real estate bubble and when it might finally pop? I'm talking central Denver here, not the suburbs. Thanks.

[2bindenver]

I doubt you will find a bubble here.

[mol666]

2bindenver, please explain why we are not in a bubble.

I am in my mid-30's. My parents and grandparents were able to afford a house, comfortably, for 2.5 X their monthly income. Why is it different for people in my generation?

I can say that my individual salary is well over the median household income in central Denver. So why is it that I can't afford the median house in my neighborhood? Yet I am able to rent a very nice apartment for much less than it would cost to own.

[tfox]

It's a factor of supply and demand. There will never be any more bungalows in Congress Park than there are today. A few scrapes, perhaps, but that's just replacing one housing unit for another. There's lots of pent-up-demand for housing in Denver neighborhoods, so prices go up.

High rise condos are anther matter -- those can be built and supply can increase, but those are also high due to high construction costs and relative lack of availability. The glass house sold out completely before work started on the project, for example. Here, too, demand outstrips supply.

I'm as frustrated as you are with the rapidly rising real estate prices in Central Denver. I don't like the idea of Central Denver being exclusively for the well-heeled, and it certainly is getting that way. But a "bubble"? Not likely. At least not in the near-term, and not likely in Central Denver. In other parts of the Metro area, certainly.

[2bindenver]

I am sorry average salary and average housing prices are unrelated. Supply and demand are stronger forces in housing prices.

Did you know that most people (way back in the old days) had FHA loans that, although amortized over 30 years they were called (due in full) every five years?

[mol666]

Supply and demand, fine, I can certainly see that.

The problem is, where are people getting the money to afford these prices? Denver's not like SF or NYC in that there are very few high-paying industries here. We don't have a lot of finance types here who have 6 figure salaries + bonuses. There are wealthy families, for sure, but nothing like in more established cities.

The one advantage Denver has over similar markets is we never had the big condo conversion here. It is possible to live in a decent apartment, work a $10/hr job, and live well here.

[yukon]

Sometimes I think people just see $250k as another number and the true value or cost really doesn't register. Someone once put it in perspective for me when they referred to it as "a quarter of a million dollars". Ouch!

[mol666]

Originally Posted by 2bindenver

I am sorry average salary and average housing prices are unrelated. Supply and demand are stronger forces in housing prices.

Did you know that most people (way back in the old days) had FHA loans that, although amortized over 30 years they were called (due in full) every five years?

Actually, before the days of the FHA, most mortgages were interest-only. Some economists do consider that interest-only loans played greatly in the banking collapse of the Great Depression.

Admittedly, I do not know much about the history of FHA loans themselves. I do know that 20% down was considered nearly mandatory until about 6 or 7 years ago. I also remember the stringent credit and verification requirements my parents went through when they bought their house. 20+ years later, I had many friends who also went through those same deal. Then suddenly, it became so much easier to get approved for a loan, and prices went way, way up .

I'm all for supply and demand, fine. I'm also not foolish enough to believe that we'll see houses go for $150K in Cherry Creek or Wash Park. However, this doesn't explain where people are coming up with the "supply" to go with the "demand." Just over the past few days, many lending institutions have made it more difficult to take out jumbo mortgages ($417K and higher, I believe). And, for smaller amounts--it's getting harder for people with good credit and a decent downpayment to get the approvals they could only a few months back. If banks are tightening up on credit, it seems that housing prices are going to have to go down as well.

[COflower]

In today's Denver Post: The Denver Post - Small houses lose value in metro area

I don't know if that helps gain an understanding but various neighborhoods are going to maintain either an increase is value in the basic supply-demand but also because of desire.

Where are the people that can afford those places? I personally think, because Denver - especially Denver proper - appeals to those have those high paying jobs that are probably based out of other cities. They may have employers in New York, Chicago and such (I'm not saying all of them) and are able to telecommute, go into their home base once or twice a month...I've seen it down here in C Springs too.

I also think that as Denver becomes more appealing to international companies because of the location of the airport, it's a modest place for many employers to set up a remote location.

Not that I know anything about economics but Denver and the metro area appeal to very high paid people for the lifestyle, access to a good airport and the lower cost of homes here compared to NYC, Chicago, SF.

[formercalifornian]

Originally Posted by 2bindenver

Did you know that most people (way back in the old days) had FHA loans that, although amortized over 30 years they were called (due in full) every five years?

You're half-correct.

The Federal Housing Authority was established in 1934 to counter the conditions to which you have referred. Prior to the FHA, mortgage loan terms were limited to 50 percent of the property's market value, with a repayment schedule spread over three to five years and ending with a balloon payment. The FHA became part of HUD in 1965.