Highlights from this market report:
- Home prices in Denver have risen significantly in recent years.
- But one real estate forecast suggests that trend could be changing.
- House values in Denver might actually plateau as we move into 2020.
- But tight supply and a growing population should prevent a “crash.”
Home-price appreciation within the Denver real estate market has slowed considerably over the past couple of years. Looking forward, there’s a chance house values in the area could actually “flatline” through much of 2020. Read on to find out why that might actually be good news.
A few years ago, we were reporting double-digit price gains for the Denver metro area. But a lot has changed since then. Home values rose so much over the past six or seven years that a person earning a median income for this area might have trouble affording a median-priced home.
So it’s no surprise to see a slowdown in annual home-price appreciation.
This is typically what happens when local housing markets become much more expensive within a relatively short period of time. Eventually, affordability problems creep into the mix, and would-be buyers begin to shy away from the market. This reduces demand and removes some of the upward pressure from home prices.
Home-Price Growth Has Slowed in Denver
In September 2019, the housing research team at Zillow made the following prediction for the local real estate market extending into 2020:
“Denver home values have gone up 1.5% over the past year and Zillow predicts they will fall -0.5% within the next year.”
The median house value for the area was around $420,000 when this article was published. In 2011, the median was closer to $210,000 according to Zillow. That’s an increase of more than $200,000 in just eight years’ time.
It bears repeating: The median, or midpoint, home price in Denver has more than doubled over the last eight years or so.
This is why we are starting to see some affordability issues in the area. And it’s why house values could level off in 2020, or even dip slightly.
Why a Slowdown Could Be a Good Thing
If home prices in the Denver area do hit a plateau in 2020, it will likely be a short-term market “correction” after which they begin to climb again. But the annual gains we see in future years will probably be more modest in nature, when compared to the bigger gains of the past few years.
From a broader economic standpoint, a cooling trend would probably be a good thing at this stage. Since the housing market recovery began in 2012 / 2013, home prices nationwide have risen at a rapid and unsustainable pace.
A January 2019 report from National Association of REALTORS® showed that home prices nationwide rose by 47% over the past six years, compared to a 16% increase in average wages. That’s a big disparity, and it explains why so many real estate markets across the country are now considered “unaffordable” to an average earner.
So, a slowdown in home-price growth might actually benefit the Denver housing market and the people who plan to buy homes there in the future.
In its latest “Real Estate Market Trends Report,” the Denver Metro Association of REALTORS® (DMAR) also pointed to a cooling trend. According to Jill Schafer, chair of DMAR’s Market Trends Committee:
“In the first half of 2018, home sellers were taking offers over the weekend and selecting the best one in the stack on Monday. This year , sellers are making price adjustments as they try and find the right price point to entice buyers to make an offer.”
In other words, sellers are having to work harder to sell their homes, due to a decline in demand. The September 2019 DMAR report also revealed that the median sales price for the area dropped in August, compared to the previous month.
Not Enough Housing for a Growing Population
While Denver might experience a short-term price plateau over the coming months — or at least a slowdown — there are two factors that will continue to put upward pressure on home values in the area. Population growth and inventory shortages.
According to the latest data from the U.S. Census Bureau, the population of the Denver area rose by more than 19% from April 2010 to July 2018. The region’s strong economy and natural beauty attract new residents from elsewhere in the state, and from across the country. This increases demand for housing on both the purchase and rental side.
Meanwhile, the Denver real estate market is still experiencing a shortage of inventory (the number of properties listed for sale). As of late summer 2019, this market had about a 1.8-month supply of homes for sale. That’s far less than what is considered to be a balanced market.
So the Denver real estate scene is something of a paradox right now. Housing supply remains tight and the population is growing. Normally, a housing market with those combined factors would experience significant home-price appreciation. And for several years, that was the situation in Denver. But not anymore. This market appears to be hitting a kind of “ceiling” in terms of affordability. So prices are not rising as they were in the past.
Disclaimer: This article contains home-price forecasts and projections issued by third parties not associated with the Home Buying Institute. Such predictions are the equivalent of an educated guess and should be treated as such.