how first-time buyers are finding success — and frustration — in colorado’s housing market
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By Tamara Chuang | Published on May 5, 2023
When Ashley Knight put in an offer to buy her very first house in March, it was one of four bids. And hers wasn’t the highest.
But she got it! Perhaps it was the cooling Denver-area housing market. Or that it has just one bathroom. Most likely, it was her team of real-estate pros who know the Aurora housing market. She became a homeowner last Friday.
“I didn’t expect to get my first offer to get accepted,” said Knight, who’d been sitting on the sidelines since she began window shopping for houses in 2018. “I was very shocked,” when Realtor Kathy Casey gave her the good news.
After a couple years of frenetic home sales in Denver and Colorado, the real estate industry is seeing, well, a little less frenzy. Median sale prices in Denver are still quite high, especially for prospective first-time buyers. But instead of rising in March, median sale prices fell 2.6% in a year to $415,000 for a condo and 5.5% to $599,900 for a house.
The half-million-dollar universe, however, isn’t really the price range for first-time buyers who may have jobs with promising salaries but are saddled with student loan debt, rising rent payments and higher interest rates. Renters who jump into home ownership have already made the first step: They’ve decided they’re ready.
“For me, the best buyer is the educated buyer,” said Casey, with The Real Estate Ladies in Denver and an instructor for the Denver Housing Authority Home Buyer Certification Program. She bought her first condo in 1980 for $30,000 at “an interest rate that was double digits.” She now owns a handful of rentals.
“I think it’s really tough right now for people just trying to make it. Rents are high, inflation is going up, everything’s high,” she said. “Everybody is asking, ‘When’s a good time to buy?’ Trying to time the housing market is like trying to time the stock market. You’re going to have hits and misses. What I tell people is to look at your budget and do what is right for you.”
Knight, who grew up in southeastern Aurora, credits Casey for getting her on the right path. Knight always planned to become a homeowner. But the pandemic and a layoff got in the way. Then her family couldn’t help with a down payment. She watched Denver-area prices climb past $650,000 for a single-family house last year after incredible demand and the lowest interest rates in at least 50 years. But even though interest rates are higher this year, it’s different now, she said. It was the right time for her.
“I was like, ‘All right, I just need to do this by myself.’ I hunkered down. I dedicated myself to my career, got a really good job, a stable job,” said Knight, who’s 34, and qualified for a federal housing loan with a 3.5% down payment. “And it just felt like it was the right time because I’m able to do it by myself with no help.”
Of course, she did have some help.
Casey “went back and forth with the other agent and they happened to choose mine,” Knight said. “I thought I’d have to write a letter and I didn’t have to.”
Casey also got the seller to cover closing costs on the $272,000 townhouse.
Arthur Brown, branch manager with Fairway Independent Mortgage Corp. in Greenwood Village, guided Knight through the process of applying for a Federal Housing Administration loan, in which eligible applicants who still have debt and mediocre credit can borrow up to $1.1 million.
Knight qualified for a larger home loan but didn’t want to overextend herself since she has a 6.75% interest rate. She’s paying a little more than renting a downtown Denver loft with one bathroom. Her new place has two bedrooms and a garage. She plans to refinance when rates drop. This isn’t her forever home anyway. As her income grows, she plans to move up and rent the townhouse to build her own generational wealth.
“I like to look forward,” she said. “I can refinance next year. That’s where my mind has been like, ‘All right, I’ll pay this now but as soon as I get the moment to refinance, I will.’”
36, living with family, saving up
First-time buyers look a lot like Knight these days, according to the latest survey data from the National Association of Realtors.
The median age hit 36 last year, the oldest on NAR’s record. In 1981, it was 29.
“Once they’ve decided to stay here, they’ve got a job, they’re going to build routes, they’re starting to look at starting a family, having kids and all that, that’s when they want to buy,” said Sunny Banka, a Realtor in the Denver metro area.
First-time buyers are also receiving fewer financial gifts or personal loans from their family, roughly 22% in 2022, compared with 28% in the year before. That may explain why the share of first-time buyers compared with all buyers has shrunk slightly, to 28% in March, from 30% a year ago.
They’re getting a different type of financial support, said Jessica Lautz, deputy chief economist and vice president of research for the National Association of Realtors.
“More than a quarter of them moved directly from their family member’s home into homeownership. So they were able to skip paying rent and perhaps save for a down payment that way,” Lautz said. “We’re seeing this as a pretty sizable share of the market. It’s now at 27% of first-time homebuyers. That’s the highest we’ve ever recorded.”
It was 21% in the prior year. Back in 1989, it was 15%.
Many first-time buyers are single. And a growing number are buying a house with an unrelated friend — at 5%, which may not seem like a lot, but it’s the highest share recorded, Lautz said.
Even as home prices in Colorado remain high, along with interest rates, many customers who come ready to buy have a reason that is quite simple, said Brown, the branch manager at Fairway Independent Mortgage Corp.
“I’ve been a landlord for 25 years and I tell people to this day, if you’re going to rent, rent,” he said. “But here’s the deal, if you’re trying to buy, I will definitely tell you to buy because I’ve never seen rents go down ever.”
Getting the money together
There are all sorts of programs that help first-time buyers with down-payment assistance. Federal loans like FHA and Veterans Affairs home loans require little to no down payment. The Colorado Housing and Finance Authority offers grants for down payments, if buyers take a homebuyers class and meet certain income limits.
NeighborWorks Southern Colorado, in Pueblo, educates prospective homebuyers and is also a community development financial institution, which is part of a government program to encourage banks and lenders to invest in their local communities. It’s the only program in town offering CHFA’s homebuyer education classes required for down payment assistance. Through grants, NeighborWorks can offer up to 20% of the purchase price to qualified buyers in Pueblo County, said Sarah Habib, NeighborWorks’ chief finance and operations officer.
“Understanding budgeting and saving, that’s one of the reasons why our financial fitness classes are so crucial to the process,” Habib said. “We’ll help you get to where you’re going.”
Private companies also offer their own first-time buyer programs, including many banks. In 2019, Bank of America committed $5 billion to help its low- to moderate-income clients make their first purchase. Two years ago, the bank increased its Community Homeownership Commitment program to $15 billion, said Lester Clements, the bank’s vice president for one of its lending markets.
That can provide eligible applicants a $7,500 grant to go toward closing costs and up to 3%, or $10,000, to help cover the down payment for a total of $17,500. It also has a program with a 3% down payment. Those sorts of programs are aimed at renters who feel they can’t afford a house right now.
“We surveyed potential homebuyers, specifically millennials, and 48% wanted to buy a home because they felt the pressure of adulthood,” Clements said. “In Denver, what stood out was that 70% of Denver millennials said they would consider delaying their home purchase to save more money whereas it was only 51% nationwide. … The reason they wanted to save more is because they wanted to bring down the payments they’re making for the home. And they wanted to be able to do that by putting more down. The down payment grants actually make that happen without having to postpone their dream of homeownership.”
Also popular as interest rates have risen are 2-1 buydown loans, which have lower interest rates in the first two years of the loan before adjusting to the higher rate in year three. The idea is that if interest rates fall in the next few years, the buyer can refinance at a lower rate. But if that doesn’t happen, they’re back to the interest rate they qualified for anyway.
No matter what loan his clients are leaning toward, Brown, with Fairway, which is also Colorado’s top FHA mortgage lender, said that he starts by educating them on whether they need a house and can afford one.
“The numbers have to work,” Brown said. “I have a deal right now where the lady qualifies for a $1,600 mortgage payment, which is a $180,000 condo. But guess what? She has an amazing dad who’s going to cosign with her and whatever she’s short, he’s going to pay the difference. She’s probably going to buy a place in the $400,000 range. If she was by herself, no way could she qualify.”
The 3.5% down FHA loans
The support Knight received by attending the CHFA class, having a worthy real estate agent and mortgage loan guide, resulted in Knight getting some of her earnest money back at closing.
Not all of Brown’s clients qualify for the government-backed FHA loans, which help folks who feel they’ll never get to home ownership because of debt, lower incomes or low credit scores — 580 or higher qualifies for a 3.5% down payment, while a 500 to 579 score requires 10%. But he’ll work with them by helping them realize what their financial assets are and how to improve them. It helps him too.
“What do you do with those credit scores below 580? Well, you put them on a plan to get their credit scores above 620,” Brown said. “I’ve got to build for the future. Just from doing this so long, you’ve got to make sure you give people the opportunities and the faith to know that they’re going to be able to buy. It’s just a matter of when, not if.”
CHFA saw an increase in first-time buyers starting in 2015, as Colorado’s population increased, but incomes did not keep up with home prices. The decline in first-time buyers through CHFA’s program, however, is due to the drop in affordable for-sale houses plus rising interest rates. That’s made it more difficult for low- and moderate-income buyers to compete with cash offers and non-first-time buyers who had equity in their homes, said Paige Omohundro, CHFA’s home finance business development manager.
Being FHA eligible, however, doesn’t mean the applicant will qualify for a large enough loan to buy their dream house, though they might not even qualify for a traditional loan. An FHA loan also means higher monthly payments because of mortgage insurance (that protects the bank in case the borrower defaults).
And unfortunately for Brent Newman, who also went the FHA loan route to hunt for a house in the foothills, he was told that one seller didn’t pick his offer last month because it was an FHA loan. Newman, 35, even offered above the asking price. The seller picked an offer that was at asking price.
“We are learning that well, maybe that’s not the best approach because a lot of sellers don’t want to (deal with) the strict conditions of the mortgage,” said Newman, who went the FHA route to qualify for a larger loan despite a lot of student loan debt between him and his partner. “We were told that if things like the paint chips on the siding or something like that, it would flag that it would have to be mitigated before the loan would go through. They just want to sell it and not have to deal with the nitpicking.”
That’s the extra precaution that federally backed loans require, said Omohundro, with CHFA, which invests in conventional and FHA loans. She recommends an inspection regardless of the loan type because it helps inform the buyer upfront.
“In a tight market, this could make for a tougher environment for buyers competing against multiple offers. However, we believe upfront knowledge is power when it comes to making a significant investment such as buying a home,” Omohundro said in an email.
On Wednesday, Newman terminated an offer he made on another house, this time in Bailey. The inspection revealed the house needed a new roof, a new electrical panel, sewage backup mitigation and more. The seller agreed to fix the issues but would need an extra $8,000 to agree to the sale. While Newman agreed, he didn’t hear back from the seller. While he was waiting, he wondered how difficult it would be to sell the house and what insurance would cost in the high fire risk area.
“It’s been a roller-coaster ride and a learning experience for sure. Because the sellers could not ensure that the safety concerns would be addressed in a timely manner, we are only out the cost of inspection to terminate,” Newman wrote in a follow-up email. “And, boy, was that inspection worth its weight in preventing a real nightmare purchase.”