Denver, San Jose, Portland: Where Buying a Home Might Be a Bad Idea

Highlights from this housing report:

  • In 2019, home buyers should keep an eye out for market changes.
  • Home prices are now dropping in some cities across the U.S.
  • The list includes Seattle, San Jose, Denver, and Portland (OR).
  • These and other housing markets might be a bad investment for buyers.

Three or four years ago, home prices were rising in most cities across the U.S. But things have changed since then. For a number of reasons, prices in many housing markets across the country are starting to level off. And in some areas, they are actually declining.

Look at Denver; Seattle; San Jose; and Portland, Oregon for example. These were some of the hottest housing markets in the country just a few years ago. (Example: Hop into your time machine and check out this 2015 article we wrote about the San Jose real estate scene.)

Today, buying a home in one of these cities might actually be a bad idea. That’s because home prices have actually declined in these markets. And some forecasts suggest they’ll continue to drop through the end of 2019 and into 2020.

When you buy a home in a real estate market where prices are dropping, you are essentially buying a depreciating asset. There are few scenarios where it makes sense to do that. There are too many unknowns.

Will prices rally and start rising again, or continue along a downward slope? And if you’re using a mortgage loan to buy that house, will you end up owing more than your home is worth a few years down the road? There’s just no way of knowing.

But let’s put those questions on the back burner for now and look at what is happening in these (and other) real estate markets.

Housing Markets Where Buying a Home Might Be Unwise

Stay away from West Coast housing markets … and Denver.

That might be good advice for real estate investors looking for a place to make their next purchase. “Regular” home buyers should exercise caution here as well.

Believe it or not, there are many cities in the U.S. where home prices have started to drop in 2019. And many of them are located along the West Coast. Denver stands out as being one of the few inland metro areas where prices are dropping measurably — a dubious distinction.

The bottom line here is that once-hot real estate markets like Denver, Seattle, Portland, and San Jose have cooled considerably. In these cities, would-be home buyers who are concerned about future resale value might want to take a wait-and-see approach for now.

San Jose, California: From Boom to Bust

Over the past few years, we’ve written a lot about the housing market in San Jose, California. It’s an anomaly in several ways.

San Jose experienced one of the most dramatic increases in home prices over the past six or seven years. It’s also one of the most expensive real estate markets in the country, with a median home value north of $1 million as of July 2019.

But that median price is falling, and it could continue to do so for the foreseeable future. This formerly red-hot housing market started to cool back in 2018. It’s currently experiencing what might be called a “mini crash,” in terms of home prices.

The chart below, created by Zillow, speaks volumes about the unusual home-price situation in San Jose, California. You can see the steep incline that began in late 2012, followed by the downturn in 2019. This chart also shows the company’s forecast for the next year or so (the green shaded area).

Chart with San Jose home prices
Chart: San Jose, California home prices. Source: Zillow.com.

As of July 2019, the housing research team at Zillow labeled this real estate market as being “cold” and wrote the following:

“San Jose home values have declined -4.2% over the past year and Zillow predicts they will fall -6.9% within the next year.”

Eventually, house prices in this market will find a bottom and level off. They might even turn north again. But there’s no telling when that will happen.

Seattle, Washington: An Investor’s Paradise No More

A few years ago, the Seattle real estate market was a hot spot for investors. Overseas investors, in particular, were snatching up properties left and right. They did this because they foresaw a steady increase in home prices, with all of the profit potential that entails.

And they were right.

Home prices within the Seattle housing market shot up like a rocket from 2012 to 2018. For a while there, the median house value in the area was climbing by double digits annually.

But that was then, and this is now. In 2019, you don’t see very many real estate investors in the Seattle area. Savvy investors anticipated the major home-price gains mentioned above, and they also saw a downturn coming.

The chart below shows the median home value for Seattle over the past ten years or so. Again, this is based on Zillow’s proprietary measure of house prices in the U.S.

Chart showing Seattle home prices
Chart: Seattle, Washington home prices. Source: Zillow.com.

As of July 2019, the median home value in Seattle was around $718,000. Prices in the city have declined over the past year and are expected to continue dropping over the coming months. This is another housing market where home buyers might want to stay on the sidelines for a while.

Denver, Colorado: Home Prices Appear to Leveling Off

The situation within Denver’s real estate market is less extreme. This city has also experienced a sharp rise in home values over the past six years or so. But house prices in Denver are not dropping like a stone. At least not yet. Instead, they appear to be leveling off or plateauing.

Here is Zillow’s record of the median home value for Denver, going back ten years or so.

Chart with Denver home prices
Chart: Denver, Colorado home values. Source: Zillow.com.

Their researchers predict that home values in Denver will fall by -0.1% within the next year. That forecast was issued in July 2019, which means it extends into the summer of 2020.

Price trends within the Denver real estate market are a bit hard to read at the moment. It’s not yet clear whether the city will experience a major drop in home values, or a prolonged plateau. But change is in the wind. Home buyers should take note.

Portland, Oregon: Is a Market Correction Underway?

A few years ago, Portland, Oregon was another one of those western housing markets where prices were skyrocketing.

Like many of the other cities in this report, house values began to climb steadily starting in 2012. They continued along that trajectory up until 2017, when a kind of “leveling” took place.

For a while there, it looked like home prices in the Portland housing market would just flatten out for a while — and maybe turn north again. But now it’s official. They’ve actually dropped.

In July 2019, the team at Zillow wrote:

“Portland home values have declined -1.6% over the past year and Zillow predicts they will fall -2.1% within the next year [into summer 2020].”

San Diego, California: Another ‘Cooling’ Housing Market

Home prices in San Diego appear to be flatlining, as of summer 2019. The latest reports for this housing market point to an ongoing slowdown in price growth.

As with Denver, though, it’s too early to say if the San Diego real estate scene is headed for a downturn. But it’s certainly a possibility.

The same could be said for many of the coastal cities in California, actually. Home prices in these cities rose sharply and significantly after the Great Recession. That was largely due to a shortage of inventory. There were many buyers and investors in the market, but not enough homes to go around. So prices skyrocketed.

Today, in 2019, many of the coastal real estate markets in California, Oregon and Washington State are experiencing a cooling trend. Prices are leveling off and, in some cases, starting to drop. We expect to see more of this in 2020. Buyers beware.

Inventory Gains: A Common Thread

Inventory growth is something a lot of these housing markets have in common. For several years, cities like San Jose and Seattle suffered from a severe shortage of homes for sale. There were plenty of buyers in the market, but very little inventory.

Most of these real estate markets still have a dearth of inventory, from a historical standpoint. But we’ve seen some growth over the past couple of years. In short, home buyers in some of these cities now have more properties to choose from, compared to those who purchased in recent years.

Read: Top 10 markets where inventory is rising

In a real estate context, inventory growth does a couple of things. It takes some of the urgency out of the home-buying process, and gives buyers a chance to “catch their breath.” It eases competition. It tends to result in slower home sales, price cuts, and other signs of market shift.

This is what we are seeing in a lot of the formerly red-hot housing markets, like Seattle, San Jose, Denver and Portland.

All of this underscores the importance of research. Home buyers who are planning to make a purchase in 2019 or 2020 should spend some time researching local housing market trends.

What are home prices doing in your area? What are the experts predicting for the future? Is it a good time to buy, or should you “wait and see” for a while longer? Answering these questions (as much as possible) will help you make a better-informed decision.

Disclaimer: This story includes home-price forecasts provided by third-party sources not associated with the Home Buying Institute. Such predictions are the equivalent of an educated guess and should be viewed as such. The publishers of this website make no claims or assertions about future housing conditions.