How is the Housing Affordability in Denver?
The average median cost of a home in the Denver Metro Area has increased from $350,000 in mid 2017 to over $600,000 in mid 2022. The year-over-year median price increases over the last year or so have been in the 18-22% range. Housing has certainly become more expensive in Denver the last few years! As I write this in June, 2022 there’s only two weeks of inventory in the Denver Metro MLS and on average homes are on the market for only four days before going under contract for purchase! Despite recent interest rate increases, it’s still a strong seller’s market.
What is the root cause of the Denver Housing Affordability Problem?
The biggest contributing factor is low inventory. For quite some time now Denver’s housing inventory has been at or near historic lows. With strong demand and very little supply, prices have been rising…significantly!
Low interest rates, i.e. cheap money, has also contributed to the strong demand. Rates have recently risen; 30 year fixed loans now cost about 5.5% compared to 3.5% last year. That’s a BIG difference, and a significant impact to most buyers. Higher interest rates have priced some buyers out of the market, and forced others to buy a smaller, less expensive home than they would have, could have, a year ago.
What’s the Outlook for the Near Future?
Over time supply and demand will come closer to being in balance. But most experts expect it will take quite some time. As noted above, interest rates will reduce demand. However, we’re still seeing strong demand for homes; many are still receiving multiple offers, and most are still selling for more than the list price. Builders are working hard to build new homes, and there are many options for buyers interested in purchase new construction. Another supply factor is the higher prices is inducing some people to sell their home. But where do they move to? Some are moving out of state; we’ve had multiple clients recently sell their Colorado home and move to Florida and Iowa. We don’t expect Denver prices to increase at the 18-22% rate of the last couple of years, but they will continue to rise, probably in the 8-12% range.