Big equity gains may explain why people aren’t staying around as long
Out of the 50 largest metros in the country, metro Denver residents stayed in their homes the fifth shortest amount of time on average, according to a new study from LendingTree, an online mortgage brokerage.
Metro Denver homeowners sit on their abodes an average of 6.63 years, according to the study, which is based on the latest American Community Survey put out by the U.S. Census Bureau. That average includes all the stalwarts who have stayed put 50 or 60 years. So the households that do move around are probably spending less time than that average in one place.
Only owners in Las Vegas at 6.36 years; Phoenix at 6.43 years; Austin, Texas at 6.49 years; and Orlando at 6.59 years put down shallower roots after purchasing a home.
All those cities are in much warmer climates, and they have a much lower median home price than Denver, which came in at $386,400. But like Denver, they have seen an influx of newcomers. Given that transplants who buy a home start at zero, that is one thing that can bring the average down.
“A lot of new residents generally lowers the average tenure and large price increases are an incentive for owners to sell,” said Tendayi Kapfidze, the report’s author.
When smoothed out across long periods of time, home prices rise at the rate of inflation plus 1 percent or less a year, according to Yale economist Robert Shiller. Slow appreciation rates create an incentive to stay put, especially when commissions of 5 to 6 percent are part of the cost of selling.
But Denver had the highest rate of home price appreciation of the 50 metros between 2014-17 at 40 percent, according to the LendingTree report. When home prices rise at double-digit annual rates, as they did in Denver until last year, owners build a big equity cushion quickly.
They can use it to upgrade to a more expensive home, or they can just take the money and run. What metros with the shortest tenure tend to share in common is high home price appreciation.
“This suggests that higher housing turnover drives prices upwards, while faster price appreciation could be enticing homeowners to sell,” said Kapfidze
A lack of adequate new construction has left many markets short on supply, especially when it comes to entry-level homes. That, in turn, has created bidding wars for homes. When supply in a market is tight, buyers, in theory, should hunker down and stretch things out. That’s why cars from the 1950s are still being driven on the streets of Havana.
The opposite seems to be the case in housing. The same lack of supply that can cause prices to rise sharply, also creates a level of wealth that allows people to move more frequently.
But what happens when the music stops and appreciation rates slow or turn negative, as is now happening in metro Denver? The median price of a home sold in Denver, Boulder and Douglas counties fell last month compared to a year earlier. It is likely that other areas will follow in the months ahead.
A slower market should lengthen the time people stay in their homes. That seems to be the case for the markets with the longest tenure. Those metros were Pittsburgh at 7.54 years; New York City at 7.53 years; Buffalo, N.Y., at 7.50 years; and Philadelphia at 7.49 years.
Read more in the Denver Post.