Metro Denver ranks second only to Washington, D.C., among the country’s 100 largest metro areas for the share of homeowners carrying a mortgage, according to an analysis of U.S. Census Bureau data by LawnStarter.
About 76.1 percent of Denver owner-occupied homes had a mortgage backing them in 2015 versus 79.1 percent in Washington, D.C. Colorado Springs also made the list, ranking fifth with 74.8 percent of homes carrying a mortgage, the study found.
“The market in Denver has been so good and we have had a lot of properties trading,” said Mark Trenka, chair-elect for the Colorado Association of Realtors and owner of a Century 21 brokerage in Denver.
Cities with population growth, robust existing home sales and active new construction are likely to have a higher share of homes with a mortgage compared to stagnant ones where owners have stayed put for years and paid off their loans, he said.
Trenka said he has also witnessed another trend at play. Investors who bought low and paid cash during the housing crash are selling their properties to owner-occupants with mortgages.
Some, but not all, of the most-mortgaged metros also are among the hottest housing markets in the country when it comes to the speed of sales and price appreciation. They include places like Provo, Utah; Seattle; Portland, Ore., and San Francisco.
Having a higher share of mortgaged homes can cut either way, depending on the direction of prices. A study from CoreLogic found that homeowners in Colorado averaged a $26,000 gain in equity the past 12 months versus $11,000 for homeowners nationally. Only homeowners in California, Washington and Oregon enjoyed bigger equity gains in dollar terms.
Leverage allows for a higher return on investment. A $400,000 home with the mortgage paid off or purchased with cash would generate a equity gain of $40,000 if the value rises 10 percent.
While definitely not shabby, someone putting 20 percent or $80,000 down and carrying a mortgage on the rest would see a 50 percent return on the up-front investment in property under the same scenario.
The flip side is if home values fall, a high share of mortgage debt can come back to bite owners, generating more foreclosures and downward pressure on prices.
CoreLogic every quarter also tracks negative equity or the share of homes in the market that are worth less than the debt still owed on them. In metro Miami, 18.4 percent of homes with a mortgage were still underwater in the second quarter, while in Las Vegas, 17.6 percent of homes were.
By contrast, only 1.5 percent of metro Denver homes with a mortgage were in a negative equity position, the second smallest share after San Francisco at 0.6 percent.
