Amid Colorado’s picturesque landscapes and booming tech sector, an alarming trend is gaining prominence. According to a recently unveiled study by Forbes Advisor, Colorado households are saddled with the heaviest debt burdens of any state in the nation. Intriguingly, this weight remains even when compared to traditionally more expensive places to inhabit, like California and Hawaii.
There’s no place in the country where the share of debt compared to income is higher than in Colorado. This could spell major trouble, particularly if the prediction of Fed watcher Jim Grant turns out to be ominously correct – a potential big downturn triggered by years of heavy borrowing across all sectors of the economy.
The Federal Reserve Bank of New York’s Household Debt and Credit Report comprises mortgages, student loans, auto loans, credit cards, and credit facilities. It represents a comprehensive measure of the indebtedness of the U.S. population.
Forbes Advisor processed these figures and formulated per capita household debt by dividing each state’s 2023 debt total by population estimates from the previous year. The results were startling. Colorado emerged at the top of the list with an average household debt of $89,170, followed by California at $84,730 and Hawaii at $82,650, respectively. The average nationwide household debt tallied $57,411, underscoring that Colorado households uniquely carry a weightier financial burden of nearly $32,000.
It’s worth considering that the average Coloradan earns more than the residents of most other states, which could, ostensibly, support higher debt loads. But look deeper, and you’ll find the debt remains hefty. Even after accounting for the residents’ higher income, Colorado’s household debt as a share of household income is precariously high at 99.85%, the steepest load any state carries. Comparatively, the debt-to-income ratio in California and Nevada stands at 92.6% and 91.3% respectively.
The overall average household debt-to-income ratio across all states is 77%. This indicates that when compared with nationwide trends, debt represents a more significant hindrance in Colorado. Extrapolating for households at or near zero debt, it’s conceivable that those carrying debt are leveraged at even higher levels than the reported 1-to-1 ratio.
So, what drives Colorado’s high debt levels? Mortgages provide a strong clue. Colorado has the fourth-highest median home price in the U.S. at $612,000, according to national brokerage firm Redfin. However, despite the higher prices in California and Hawaii, a larger proportion of Colorado residents own homes and, hence, bear mortgages.
Indeed, Colorado’s homeownership rate reaches 67.4%, with more than two-thirds of households owning their place of residence. Comparatively lower rates in Hawaii (59.2%) and California (55.3%) imply fewer mortgages in these states, according to U.S. Census Bureau data.
Despite the pandemic-driven surge in home prices, Colorado’s homeownership rate steadily climbed, rising from 64.9% in 2020 to 67.4% in 2021. This is likely propelled by an above-average proportion of millennials, who are currently in their prime homebuying years and are taking on substantial mortgages to do so.
Further, nationally, about four in 10 households that own their homes have cleared their mortgage, typically accomplished over time. However, in Colorado, this rate eases back to three in 10 households, making it one of the states with the fewest mortgage-free households.
This data suggests that a greater proportion of Colorado households have recently taken up homeownership, likely acquiring the highest prices in the country and, thus, larger mortgages based on recent growing interest rates. It follows then that fewer households have successfully cleared their mortgages in Colorado compared to other places.
To view current mortgage rates in the State of Colorado versus national figures, visit: https://www.mortgageadv.com/colorado/mortgage-rates/
The ramifications of this increased indebtedness remain to be seen. However, as maximum financial resilience often hinges upon minimizing debt loads, it’s clear that these revelations paint a somewhat troubled picture of the financial future of a majority of Colorado households.